Just 19 per cent say TPR criminal powers policy is 'adequately clear'

Figures shared with Pensions Expert by Aon quantified the extent of the industry’s dissatisfaction with the much-criticised criminal powers policy. 

Concerns about the extent and scope of “clause 107” of the Pensions Schemes Act, which empowers the regulator to pursue those deemed to have risked accrued scheme benefits, were raised as far back as January this year.

As the drafting of the offences is broad and subjective enough to catch a lot of common business activities, such as paying a dividend, the burden falls on TPR’s published policy to provide the necessary reassurance that regular business decisions will not inadvertently lead to a prison term. Put simply, the policy does not go far enough to provide reassurance

John Harvey, Aon

It is widely believed that the clause was so broadly drafted that all manner of legitimate business activity could fall within its scope, leaving trustees, scheme managers, business owners and even lenders criminally liable for action taken that later transpired to have reduced the odds of members receiving their benefits in full.

Pensions Expert has reported often on warnings that the uncertainty about the application of these new powers could lead to unnecessary bankruptcies, as vital business restructures are put off for fear of criminal liability.

TPR has sought several times to reassure the industry, but to little avail. Its consultation into the draft policy governing its new powers closed on Thursday, and the responses seen by Pensions Expert were all but uniformly agreed that, while the intent behind the policy was sound, the policy itself fell well short of what was required.

Quantifying unhappiness

The figures shared with Pensions Expert by Aon were drawn from a poll conducted for its own consultation response, and quantify the extent of the problem faced by TPR.

Aon received 176 responses, 104 of which were from trustees, while the rest were principally from clients in corporate roles.

The figures show that just 19 per cent of respondents believed the draft policy was “adequately clear”, despite several attempts by TPR to reassure the industry that it did not intend to use its powers to penalise legitimate business activity.

Aon partner John Harvey said: “As the drafting of the offences is broad and subjective enough to catch a lot of common business activities, such as paying a dividend, the burden falls on TPR’s published policy to provide the necessary reassurance that regular business decisions will not inadvertently lead to a prison term. Put simply, the policy does not go far enough to provide reassurance.”

Other findings make for similarly grim reading.

A majority of respondents (55 per cent) said the new powers were likely to limit restructuring options for distressed businesses. 

Harvey asked: “If this means more struggling employers go under, is it worth it to protect the pretty low amounts that tend to be recovered by the Pension Protection Fund on insolvency?”

Almost half (43 per cent) of respondents said they saw the potential for overseas parents to avoid formalising guarantees for UK schemes.

Around a third (34 per cent) said a lack of clarity on paying shareholders’ returns through dividends would damage investment prospects for UK companies; which, Harvey pointed out, is badly needed at the moment.

Of particular concern will be the 65 per cent who said they feared that the draft policy, as it stands, could encourage companies to ditch their pension arrangements, which would risk significant negative impacts on scheme members and “UK plc”.

Harvey added that “the role of the pension scheme trustee is one area that needs addressing urgently”, as 66 per cent of respondents professed themselves worried about the consequences of a policy that enables TPR to prosecute trustees on still-nebulous grounds.

TPR’s executive director of regulatory policy, analysis and advice, David Fairs, told Pensions Expert in a podcast that he had seen no evidence that the new powers could put off prospective trustees and even encourage some to quit the profession.

However, Aon’s figures show many trustees disagree, with 64 per cent of respondents saying the new criminal offences would make it harder to attract and retain trustees.

In response, Fairs said: “The intent of the new powers is not to achieve a fundamental change in commercial norms or accepted standards of corporate behaviour in the UK. They are designed to protect savers from those who would intentionally put pension savings at risk or attempt to avoid their liabilities.

“The powers should not be seen as a barrier to investing in UK companies or making life tougher for those acting competently and responsibly in the pensions space. Rather, it will deter wrongdoers from doing wrong, and allow us to prosecute those who knowingly avoid or recklessly put savers’ benefits at risk.

“We recognise there has been speculation on the consequences of these powers, which is one of the reasons our policy was open to consultation,” he said. 

“We are considering the responses to our consultation and will take the feedback provided into account.” 

More examples required

TPR published a list of illustrative scenarios as part of its draft policy intended to put minds at ease about the type of activity it will go after, but these have widely been deemed inadequate, principally because they deal only with extreme cases and not the more common and more nuanced examples the industry will face on a daily basis.

One conclusion drawn from Aon’s consultation response is that the regulator should publish a list of acceptable commercial activity “that it will not normally prosecute”.

Fairs said it would be “impossible and inappropriate” to publish a list containing “every possible commercial activity and an assessment of whether it would be open to prosecution”.

Others in the industry agreed with Aon.

Andy Palmer, chair of the Employer Covenant Practitioners Association, said that, while supportive of the stated aims of the policy, it failed to provide in practice sufficient reassurances that only the most serious wrongdoers would be punished.

“It is the view of the ECPA that the guidance from TPR still does not provide enough clarity as to how TPR will ensure that only the worst offenders are charged with the offences,” he said.

“Furthermore, the guidance does not give sufficient comfort that legitimate corporate behaviour or accepted commercial practices will not be prosecuted. Greater clarity could be achieved by the use of additional examples to reduce the grey areas, leaving less to interpretation and bringing indictable behaviour into sharper relief.”

It was a point highlighted, too, by Arc Pensions Law partner Jane Kola, who told Pensions Expert she “had hoped the guidance would include more scenarios and examples to help everyone see more clearly where the line between criminal and non-criminal activity might be drawn given the breadth of the wording of the offences”.  

“There is very little indication of how trustees and sponsors might get more comfort that they are in the right 'ball park' in terms of what they are doing, especially in tricky circumstances,” she added, saying “it is simply not good enough to say that it is looking at the criminal offences in a similar way to its current anti-avoidance powers, as the two are different both in terms of their intent, their wording and their consequences”.

LCP principal Laura Amin told Pensions Expert the draft policy needs to be clearer in order to manage its own “deterrent effect”.

“We hope that the consultation leads to the policy being expanded to explain which ‘business as usual’ practices may attract regulatory attention, and which are likely to fall within the statutory exception of reasonable excuse,” she said. 

“Corporates need to understand how the policy would apply for example in the context of ‘business as usual’ internal group restructuring, the payment of regular (and special) dividends and ‘business as usual’ refinancing.”

Trustees likewise need reassurance, she continued, but the draft is at present “very corporate focused — examples referencing trustee action (or inaction) and appropriate trustee reasonable excuse are needed… to provide reassurance to trustees and to avoid deterring willing individuals from acting as trustees”.