On the go: The Department for Work and Pensions has proposed that the Pensions Regulator includes a new employer resources test in its contribution regime, which will be used to determine whether an act or failure to act has occurred.
The consultation, launched on March 19, stated that in the majority of the regulator’s past contribution notice cases, the act or failure to act on which the action is based is something that affects the employer, as opposed to something that damages the scheme directly.
As a result, TPR is required, in practice, to extrapolate from an employer-related act, the impact on the scheme, which is evidentially challenging, it stated.
To solve this issue, and align the overall policy intent with TPR’s approach of being clearer, quicker and tougher, the government is introducing a new employer resources test in the contribution notice regime, according to the Pensions Scheme Act 2021, which is assessed by reference to the impact on the sponsoring employer.
While detailing different options, DWP proposed that ‘resources of the employer’ be determined as normalised profits of the employer before tax.
Francesca Bailey, senior consultant at LCP, said: “It is good to see some further detail about how TPR might judge whether an action (or failure to act) by a company has had a material impact on the resources of the employer.
“The idea of using a simple profits test sounds straightforward at first sight. but would raise many practical challenges, and leaves unanswered how the rules would apply to charities and not-for-profit organisations. This could in turn lead to more requests for ‘clearance’ to TPR who will need the resources to deal with this”.
Mike Smedley, partner at Isio, noted that there was a lot of room for “subjectivity” with the proposed test, and the DWP has recognised that “it’s far from a perfect solution”.
Charles Cowling, chief actuary at Mercer, added: “Potentially, much more care and involvement of trustees is needed on corporate actions that could result in a reduction in funds being available to the pension scheme, for example employers wanting to take out bank loans.” As such, there would be more work and due diligence required by trustees, he added.
DWP’s consultation also proposes an update on non-compliance penalty rates charged by TPR, with a singular escalating rate similar to the current format for master trusts.
For schemes and all other cases that do not apply to individuals, an escalating penalty of £500 will apply on the first day.
The amount, which is suggested to increase cumulatively on each day by £500, will result in a daily rate of £10,000 after 20 days.
According to the consultation, to have reached the stage where an escalating penalty is applicable, non-compliance has to have continued for some time.
Under the proposed regulations the fee will be £400 for fixed penalties — the same level as not complying with auto-enrolment — which the government said it feels is more appropriate than a higher level that can be imposed on master trusts.
Escalating penalties for individuals will be £200 each day under the draft regulations.
