TPR criminal powers policy spurs more industry concern

TPR published the criminal powers policy on Wednesday, alongside a consultation on how it plans to use these criminal powers, given to it by the Pension Schemes Act 2021, alongside existing powers.

This act introduces two new criminal offences: the offence of avoidance of employer debt, and the offence of conduct risking accrued scheme benefits.

Industry experts have said the policy does not provide total reassurance, although improvements have been made to the level of detail.

Considering that these powers can be used to put somebody in jail, to only have the guidance associated with that two days before the decision-making processes — while some corporate events take months to plan and implement — is not really acceptable

John Harvey, Aon

Updated criminal policy

The offences will come into force on Friday October 1, only a few days after the guidance has been issued.

David Fairs, TPR’s executive director of regulatory policy, analysis and advice, said: “These new powers will give us more options to punish wrongdoers, but we hope their existence will be a deterrent in themselves.

“We made clear in our consultation that we would not use these powers in a way that targets ordinary commercial activity but only for the most serious examples of intentional or reckless conduct. We listened carefully to the feedback received, and throughout the policy document, the examples and case study it now includes, we have strived to provide greater clarity to our regulated community.

“We remain a clear, quick and tough risk-based regulator ready to act to protect savers if necessary.”

The publication of TPR’s policy on its approach to these two new offences followed a six-week consultation that received 49 responses, with the watchdog’s response to that consultation also being published on Wednesday.

Following industry feedback, the updated policy includes a detailed case study illustrating when the regulator expects to consider the use of its new criminal powers, as well as identifying some common scenarios where it would not usually expect to consider the use of these criminal powers.

Not all questions answered

The criminal powers policy has come under repeated scrutiny from the industry, citing a lack of clarity and concerns over the breadth of the powers.

In January, a Pensions Expert podcast explored the potential impact of the powers on schemes, particularly how the broadly drafted provisions could result in “potentially dire consequences” for pension professionals and schemes.

In April, an Aon survey, produced as part of its response to the consultation, revealed that fewer than one in five viewed the regulator’s draft policy as “adequately clear”.

Following the release of the guidance, industry specialists have reiterated existing concerns and acknowledged areas where the regulator has made improvements.

John Camfield, partner at LCP, said: "The revised criminal sanctions policy recognises some of the practical challenges set out in responses to the consultation.

“There is a reference that the extent to which alternative courses of action have been considered is dependent on the context, with a recognition that the timescales of M&A/restructuring can mean that decisions need to be made quickly — and this will be factored into TPR’s decision on whether a party has a ‘reasonable excuse’. These and other new examples are helpful.

"However, even with these helpful practical considerations, it is still not clear where the boundaries will lie in practice, particularly when it comes to what many might call ordinary commercial activity — for example moving cash funds around a group or paying a dividend to a parent company, and all parties will have to tread carefully as things will only become clearer when we see the first few cases.”

John Harvey, partner and actuary at Aon, told Pensions Expert that some elements TPR was invited to clarify on have not been resolved, particularly around the role of the trustee.

“That was something we invited in our consultation response, and the regulator has decided not to explicitly call out. That does this suggest to me that the regulator would be inclined to prosecute trustees in some circumstances,” he said.

And although some areas are now more robust, a lack of clarity on scheme funding could cause “nervousness” amongst trustees.

Harvey said: “There is now helpful detail in other areas of trustee duties such as their agreement to flexible apportionment arrangements, but there's no equivalent carve-out for a deal that has been reached in good faith under the scheme-specific funding regime.

“Realistically that is probably one of the most common cases where trustees are making decisions that directly impact on the finances of their scheme and would be an area of concern for me if I were a trustee.”

Policy publication timing questioned

Harvey also raised concerns about the timing of the guidance’s release.

“Considering that these powers can be used to put somebody in jail, to only have the guidance associated with that two days before the decision-making processes – while some corporate events take months to plan and implement -  is not really acceptable.”

Similarly, Richard Clark, legal director at TLT, told Pensions Expert that the revised policy puts “a lot more flesh on the bones” of the guidance, but uncertainties on how the powers will be implemented may concern some trustees.

“It clarifies what factors will be taken into account when bringing prosecutions, pre-prosecution engagement steps, and the fact that obtaining clearance will be regarded as relevant to establishing a ‘reasonable excuse’ for conduct,” he said.

However, Clark added that there is a degree of ambiguity in how the new powers will be invoked, and said he suspects that the industry will have to wait until TPR “brings an action before a reliable course of conduct is built up”. 

He suggested that the factor most likely to invoke TPR action, “in light of past cases, such as BHS”, is in a case where “the trustees, TPR and/or the Pension Protection Fund have been misled or not appropriately informed, or where we are engaged in the matter, there has been a lack of openness and timeliness of communication.” 

All the while, trustees will have to wait and see how the powers are invoked.

“Trustees and those involved in the management of occupational pension schemes, including their professional advisers, will be watching with interest to see how TPR polices this space in the near future. 

“Longer-term, as with the moral hazard powers, I suspect that people will start to exercise their own judgment again, based on the known risks of prosecution,” he said.

Clark said the introduction of these powers will “improve corporate behaviour in the short to medium term, with a near-certain increase in clearance applications to counter the lack of certainty and avoid the principal players and their advisors being in the frame for criminal proceedings.”

Consultation carousel

TPR also stated that responses to the criminal offences consultation identified the need for TPR to contextualise its criminal powers relative to its contribution notice, and financial penalty powers, along with the interaction with its broader approach to enforcement.

As a result, TPR published a new consultation that contains three draft policies.

These include the overlapping powers policy, where the regulator has the option to pursue both criminal and/or regulatory powers in respect of the same set of circumstances, as well as its monetary penalty powers policy — new powers to impose high fines for information gathering and avoidance related scenarios.

Likewise, the consultation on information gathering powers explores the use of section 72 notices, interviews and inspections in the context of enforcement cases, including TPR’s approach to the new fixed and escalating penalty powers for non-compliance.

Erica Carroll, TPR’s director of enforcement, said: “As well as our criminal powers, the act gives us a package of other measures that allows us to better investigate areas of concern and deter and punish wrongdoing, all part of our role to protect savers.

“Our consultation on our criminal powers policy allowed us to listen to the industry and make changes. I therefore encourage industry to engage in our second consultation on our three further policies so we can have a rich and diverse set of views.”

The consultation lasts 12 weeks and will close on December 22. TPR said it plans to finalise these policies early in the new year.