TPR’s criminal powers draft policy fails to repeal industry concerns

In documents published on Thursday, TPR warned its new powers would strengthen punishment for reckless behaviour towards savers and that they should act as a deterrent for anyone intending to cause harm.

The Pension Schemes Act 2021 gave the regulator new powers to crack down on two new criminal offences: the offence of avoiding employer debt and the offence of risking accrued scheme benefits.

According to TPR, a person is in breach of the first offence if they prevent the scheme from recovering any part of the debt that is due from the employer without a “reasonable excuse”. The second offence is breached if someone acts in a way that affects the likelihood of savers receiving their pension without a reasonable excuse.

The potential threat of a criminal sanction will therefore hang over those involved with DB pension schemes indefinitely

Sarah Swift, Eversheds Sutherland

Pensions Expert has reported previously on worries that the powers in the Pension Schemes Act were so broadly defined that they risked ensnaring all manner of previously legitimate business activity, which could even result in insolvencies where companies were paralysed by fear of the regulator.

There were particular concerns around the second of the two criminal offences established by the act — the offence of risking accrued scheme benefits — which seemingly threatened everyone, from trustees to lenders, with fines and jail time if their actions or inactions resulted in scheme members receiving less of their accrued benefits than they otherwise would have.

TPR tries to allay industry concerns

In publishing the draft policy, and the consultation document alongside it, TPR acknowledged the industry’s fears and made some effort to calm them. 

David Fairs, executive director of regulatory policy, said: “Our new criminal offence powers are part of a strong package of measures that enhance our existing avoidance powers, supporting our objectives to protect pension savers.

“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. Our policy is consistent with this intent.”

In its draft policy, TPR sets out a range of scenarios illustrating where it may seek to use its new powers. These include where trustees and/or the Pension Protection Fund have been misled, where significant financial gain has been made at the scheme’s expense, or where the scheme has been treated in other ways unfairly.

It also explains how it will judge whether an excuse for action is reasonable — for instance, by determining whether the impact of an action on the scheme was a “fundamentally necessary step” or an “incidental consequence”, whether any action was taken to offset that impact, and whether there was a viable alternative that would have avoided or mitigated that impact.

Crime and contribution notices connected

At present, TPR can issue a contribution notice to require a person to pay the scheme’s trustees or the PPF.

However, this notice can only be issued if the individual was the scheme’s sponsoring employer or connected with the employer. Under the new criminal sanctions, an offence can be committed by anyone other than an insolvency practitioner.

There is also a statutory limitation period on TPR’s contribution notice power of six years, but there is no limitation period with the new criminal sanctions.

Geoff Egerton, managing associate at Linklaters, welcomed the tie-in of the watchdog’s new powers to its current regime, which he said “points to the new offences being viewed by TPR as new enforcement tools, but dealing with broadly the same subject matter as the [contribution notice] regime”. 

“That will assist advisers as it provides a frame of reference. It gives comfort that actually the world is not changing fundamentally for a lot of clients because, to the extent that they were managing [contribution notice] risk properly in the past, they will likely continue to do so in future in relation to the risk of a criminal offence.”

However, Arc Pensions Law partner Anne-Marie Winton told Pensions Expert that “these tests in law have different standards of proof; criminal offences must be proved ‘beyond reasonable doubt’, which is a far higher test than the civil law standard of proof for contribution notices ‘on the balance of probability’”.

Eversheds Sutherland pensions partner Sarah Swift noted that example scenarios provide by TPR “fall short of a definitive and clear set of boundaries”, and highlighted the fact that the regulator clarified that “there will be no new clearance regime to allow individuals or companies to clear their actions in advance”. 

“Nor is there a limitation period that will apply,” she added. “The potential threat of a criminal sanction will therefore hang over those involved with DB pension schemes indefinitely.”

Arm of the law is longer than advertised

In addition to there being no limitation period, Swift said that “evidence pre-dating the new law coming into force may be relevant to their investigations if indicating someone’s intention — so, despite ministerial assurances that the law will not be retrospective, it appears as though TPR will have an option to look back in time”.

Pensions minister Guy Opperman had previously portrayed the purpose of the powers as being to go after “bosses who plunder” pension funds. But LCP principal Laura Amin was not alone in arguing that the draft policy exceeds that limited scope.

“In reality, these new powers are much wider and are actually about those who take money out of businesses rather than steal from pension funds,” Amin said.

Though the guidance “offers some reassurance” that normal business behaviour will be exempt, “what seems defensible today may look very different through the lens of history, especially if things go wrong”, she said.  

“Corporate Britain cannot afford to relax and needs to make sure that all key decisions are seen through a pensions lens and go through a proper and well-documented, decision-making process.”

Luke Hartley, director at Lincoln Pensions, argued that “grey areas” could cause particular problems during restructuring scenarios.

In such scenarios, he said that “the key ‘defences’ of a strong audit trail and early engagement with the trustees and TPR — with a view to reaching mitigation — are not always possible”.

Hartley said this will require commercial decisions to be made “based on partial information”, and the “continuing concern is that TPR’s additional powers will make otherwise beneficial deals too risky, leading to worse outcomes on average for members”.

“While these areas will no doubt be challenged in the consultation, for the time being the guidance leaves as many questions as it provides answers,” he said.

The draft policy is now the subject of a consultation, which will run until April 22.