A survey carried out as part of a webinar by law firm Sackers has laid bare a deep divide in the industry over powers afforded by the Pension Schemes Act.
Pensions Expert has reported a number of times on fears held by some industry experts about the expanded definition of criminal liability and the increased powers given to the Pensions Regulator.
LCP warned in January that, as it stands, the Pension Schemes Act has the potential to ensnare all manner of legitimate business activity within its definition of criminal liability; while in a Pensions Expert podcast, Arc Pensions Law partner Jane Kola suggested this could result in a raft of avoidable insolvencies.
The real issue is that the wording is so wide it is difficult to determine whether someone would be caught by the new provisions or not — that’s not fair as people cannot conduct their affairs and be certain that they are safe from the risk of prosecution
Jane Kola, Arc Pensions Law
However, at the webinar hosted by Sackers, where respondents were polled about their attitude towards the measures included in the act, 43 per cent of the survey’s 119 respondents said that they had no concerns in relation to TPR’s new powers.
Forty per cent reported being mildly concerned, while only 17 per cent were “very or extremely” concerned.
Sackers partner Peter Murphy said: “Our survey has shown that many trustees and employers are not, at present, overly concerned with the powers and how they might be deployed in practice.
“Although I doubt that we will see a flurry of criminal prosecutions, corporate decision-makers will need to be even more aware of their pensions obligations — and trustees will be even more involved with, and able to influence, corporate activity,” he said.
Don’t panic
Reflecting the majority view, Charles Cowling, chief actuary at Mercer, told Pensions Expert: “It’s fair to say that our concerns here are relatively low.
“Some of the original concerns about the act having retrospective effect have now been allayed by the pensions minister’s confirmation that the measures will only apply once the new powers come into force. Moreover, criminal liability is only anticipated to apply in cases where actions have led to pension schemes being deliberately and detrimentally impacted,” he explained.
“Anticipated guidance from TPR will interpret and regulate the new powers and will be key to the impact on trustee and sponsor behaviours, but provided that the guidance from TPR is clear — and there is every reason to expect this to be the case — then we believe it is reasonable for trustees to have few concerns.”
Hymans Robertson partner Laura McLaren added there was a clear expectation that TPR will “concentrate the most severe sanctions on situations where sponsoring employers are seen to be deliberately trying to sidestep pension responsibilities”.
“The hope is that TPR’s guidance [when issued] will provide sufficient clarity and reassurance. It’s vanishingly unlikely that anyone will be prosecuted — never mind convicted — for doing mundane stuff,” she continued.
While noting that schemes and trustees will still want to “tread carefully” and be careful to document all decision-making that could fall under the purview of the new powers, she added that “changes to the funding code of practice are a more pressing consideration for sponsoring employers and trustees”.
Guidance is not law
However, Kola told Pensions Expert that the industry should not overstate the likely impact of TPR’s as-yet-unissued guidance.
Responding to Sackers’ findings, she said that clients “are simply unaware of the breadth of the new powers and how they link to TPR’s beefed-up powers, the risk of higher fines and ultimately the criminal offences”.
“It has been publicised by the authorities as targeting unscrupulous employers taking advantage of or mistreating pension schemes,” she continued.
“If you don’t think you are an unscrupulous employer, then you would think you have nothing to fear. That simply isn’t true: employers, trustees and advisers can be caught by this legislation even if making relatively routine decisions.”
Though guidance from TPR will help the industry figure out when and in what circumstances the new powers might be applied, Kola stressed that “guidance is not law and so does not offer any meaningful protection”.
“Of course, if nothing goes wrong there will be no issue. If the scheme becomes fully funded of its own accord and full member benefits are secured with insurance, there is nothing to prosecute,” she continued.
New powers require additional regulation
In a blog published on Tuesday, David Fairs, TPR executive director of regulatory policy, analysis and advice, said that many of the act’s provisions “won’t commence straight away”, with many requiring regulations from the Department for Work and Pensions.
“TPR will be engaging with the pensions industry and providing guidance in due course to help it navigate the changes brought by the new law,” he said.
He also laid out in more detail the act’s provisions covering climate change reporting and the new DB funding code.
“But what if the sponsor begins to fail or the investment strategy doesn’t work out? The real issue is that the wording is so wide it is difficult to determine whether someone would be caught by the new provisions or not — that’s not fair as people cannot conduct their affairs and be certain that they are safe from the risk of prosecution.”
Simon Thomas, partner at law firm Goodwin, concurred. He said the new powers “have wide implications for the decisions of boards and may have the unfortunate consequence of preventing boards, their advisers and lenders from pursuing strategies that could lead to a better outcome for all creditors, including the beneficiaries of the pension scheme”.
“The guidance is keenly awaited, including what amounts to a ‘reasonable excuse’, but it remains to be seen whether this will be sufficient to prevent the potentially value destructive consequences of the legislation,” he added.
