Industry facing trustee exodus due to TPR’s new powers

Its warning concerns the controversial clause 107 of the Pension Schemes Act, and TPR’s newly won ability to prosecute two new criminal offences: failing to recover debt, and action — or inaction — that reduces the chance of members getting their benefits in full.

In March, the regulator published its draft policy into the use of its new powers.

David Fairs, TPR’s executive director of regulatory policy, stressed that its intent was “not to change commercial norms or accepted standards of corporate behaviour”.

This is understandably making many of our trustee clients nervous and we have already seen this contributing to the resignation of some

John Harvey, Aon

The policy set out a range of scenarios demonstrating when and how the powers will be used, while offering some explanation as to how TPR will judge what constitutes a “reasonable excuse” for action, and aimed to draw a link between the new criminal powers and the established contribution notice regime.

Fear ‘contributing’ to trustee resignations

TPR’s attempts to clarify its new remit have not been sufficient to ward off critics, however. 

Aon partner John Harvey told Pensions Expert that the regulator’s draft guidance “doesn’t really tie TPR’s hands from prosecuting more broadly if it believes there is a case to do so”.

“If the intention is to give reassurance to nervous trustees and companies, TPR needs to do more to clarify where the dividing line lies between commercial norms and reckless behaviour.”

Harvey’s starkest warning concerned the effect of the new powers on trustees.

“For the first time, pension trustees are facing up to seven years’ imprisonment for the decisions they could make while running their pension schemes,” he explained.

“This is understandably making many of our trustee clients nervous and we have already seen this contributing to the resignation of some. We are also concerned that those running schemes do not become so worried that they hold back on important activity to reduce risk in the scheme.

“Being a trustee has never been straightforward, but there is nothing in the guidance or in the numerous examples that addresses the trustee decision-making role. TPR needs to do more to reassure, or it may risk facing an exodus of lay trustees at a vital time,” he added.

Trustees are not the ‘primary target’

LCP partner Jonathan Camfield was more sanguine. Though acknowledging that the new powers could “lead to greater nervousness”, and potentially put people off looking to become lay trustees in future, he said that “in general, we don’t think trustees will be TPR’s primary target”.

“On normal derisking activities, as long as members are being offered fair options, we see little risk, though trustees will wish to seek reassurance from their advisers,” he said. 

Of more concern will be the effect the uncertainty has on corporate activity, and whether TPR has the capacity to deal with a sudden influx of clearance requests from those keen not to fall foul of the new legislation, Camfield continued.

Pensions Expert reported last week than more than 90 per cent of pension professionals believe clearance applications are likely to increase, according to a survey conducted by Norton Rose Fulbright.

Camfield said: “Although the criminal offences are the sting in the tail, the main concern is the new contribution notices — which we think are at risk of getting triggered in a wide variety of situations and mean that companies will be at risk of having a [contribution notice] imposed by TPR.

“There is a risk that TPR may not have the capacity for the volume of clearance requests that could be triggered by the new legislative framework.”

TPR ‘caught between a rock and a hard place’

Arc Pensions Law partner Jane Kola, who, on an episode of the Pensions Expert podcast, said that TPR was caught “between a rock and a hard place” as it is able to issue guidance but not to address flaws in legislation.

Nonetheless, she argued that the guidance has thus far been “too lightweight, especially for schemes and employers who are suffering some form of financial distress”.

“Financial distress does not mean insolvency, it means that the risk of insolvency is high and unless decisive action is taken insolvency becomes inevitable,” Kola explained.

“There is no time to dither in such situations, and for decisions that are made there is still a fair chance of failure. We now have laws where it may actually be better to let a company that could have had a chance of survival fail, with the defined benefit scheme ending up in the Pension Protection Fund.

“That cannot be right, especially as we come out of the pandemic with many once-strong businesses having to fight hard to recover,” she noted.

Sackers partner Peter Murphy seconded calls for more detail from TPR, but said “we shouldn’t hold our breath”.

“One can imagine that TPR will wish to retain some flexibility and might not be too displeased if an element of uncertainty was to result in more cautious behaviour regarding the potential impact of corporate activity on pension schemes and their members’ benefits,” he said.

A TPR spokesperson said: “As our draft policy highlights, the intent of the new criminal offences is not to change commercial norms or accepted standards of corporate behaviour.

"Rather, it is to tackle the more serious examples of intentional or reckless conduct that puts members' savings at risk; and strengthen the deterrent and punishment for that behaviour. Most people won't need to be concerned by these new powers.

"Our approach to these new offences will take account of the policy intent, all relevant facts and circumstances, as well as the response to them and the reasons for actions taken. Our policy cannot, and should not, seek to cut down the scope of the powers determined by Parliament.”