Analysis: The Pensions Regulator's "clearer, quicker and tougher" approach is one of the main reasons behind the recent spike in section 72 requests, experts say.
Almost 1,000 s72 requests for information about pension scheme funding, administration and legislative compliance have been made by the watchdog since 2010.
The data, released by the regulator last month following a freedom of information request by law firm Herbert Smith Freehills, revealed a 133 per cent increase in the number of requests over the five years to June 2019, compared with the previous five year period.
We've seen cases where clients have effectively had someone – one of their team – working on it full time, which means that they are therefore not doing their day job
Samantha Brown, Herbert Smith Freehills
According to the figures, between 2010 and 2016 there were no enforcement actions. However, in 2017 enforcement action was taken in four cases, and this was repeated last year. This suggests the watchdog is increasingly likely to enforce its requests for information, according to Herbert Smith Freehills.
Under section 72 of the Pensions Act 2004, the regulator has the power to request certain information and documents relevant to its statutory functions.
If the recipient, such as a trustee, scheme manager or employer, fails to provide such information without a reasonable excuse, it is a criminal offence and can lead to an unlimited fine.
A high-profile example of the watchdog’s use of its s72 powers involved Dominic Chappell, director and majority shareholder of the company that purchased BHS for £1. Mr Chappell was ordered in December 2018 to pay more than £124,000 for failing to hand over information to the regulator.
‘Clearer, quicker and tougher’
Experts agree that one of the main reasons behind the increased number of s72 notices is the watchdog's aim to be more effective and proactive.
Indeed, a spokesperson for TPR says: “Our power to require companies and individuals to provide us with information is an important tool in our regulatory case work. In line with our clearer, quicker and tougher approach, we will not hesitate to prosecute companies or individuals if they fail to give us the information we require to investigate cases and ultimately protect pension savers.”
Samantha Brown, partner in Herbert Smith Freehills’ employment, pensions and incentives practice, highlights that over the past year or so the regulator has been under more intense public scrutiny and criticism than ever.
“A lot of that has been quite acute criticism about failure to act and so on,” she says.
In its corporate plan for 2018-2021, published last year, the regulator outlined its plans to become “clearer, quicker and tougher” as part of its intention to boost its effectiveness by taking action “in a broader and more visible way”.
Source: TPR
“One of the reasons I think why they haven’t exercised their powers in the past is through lack of information, because the thresholds that they need to make to exercise their powers – particularly their moral hazard powers – are quite high,” Ms Brown notes.
“The section 72 gives them the ability to source the information that they need to support their broader powers.”
She adds: “I think probably, if you look more broadly across the piece as to how many powers they have exercised recently, or how many investigations they have conducted, you will find that that has gone up as well.”
Ms Brown notes it is possible for one investigation to involve multiple notices being issued.
“Success breeds success, and certainly in some cases that we have seen they may have issued one section 72 notice, found that that has resulted in them getting a lot of disclosure, realise they need some more, and so they’ve issued another one,” she says.
Another example of the regulator using its s72 power recently involved Samuel Smith Old Brewery and its chairman Humphrey Smith pleading guilty last year to failing to provide information about its final salary schemes to TPR.
Scams spotted more quickly
Chris Roberts, trustee representative at Dalriada Trustees, says the s72 figures are “a clear message that the regulator is more active in policing the governance of pension schemes”.
He adds that issues such as pension scams are being spotted and caught a lot more quickly.
In 2017, a regulatory intervention report detailed how the watchdog used its s72 power to require information from a London-based firm of solicitors.
The documents related to a property linked to someone who was involved in a pension scam investigation – the solicitors and their client were not themselves under investigation.
Mr Roberts notes those involved in pension scams “will be a key focus in s72 powers because ultimately they don’t want to provide information”.
He says: “The vast majority of employers will engage. It’s relatively unusual a s72 is required because if you’re proactively engaging with the regulator and providing them with what they need then that power is not necessary."
He adds that a number of the requests could also relate to auto-enrolment breaches. Auto-enrolment has brought a lot more employers who have not really engaged with the regulator before under the watchdog’s spotlight, Mr Roberts notes.
Gathering info
If schemes are faced with a s72 notice, Mr Roberts says they should first make sure they fully understand the request and the rationale behind the request. They should also engage with their advisers.
“Quite often, some of the information would be contained by advisers – particularly the administrator and actuary,” he notes.
Chappell fined more than £124k for failing to reveal info about BHS sale
Last year, Dominic Chappell, the director and majority shareholder of the company that bought BHS for £1, was ordered to pay more than £124,000 for failing to hand over information to the Pensions Regulator.
Gathering information in response to a s72 regulatory request can be time consuming and expensive – sometimes costing “tens of thousands of pounds”, according to Ms Brown.
For example, some of the information the regulator has asked for does not already exist in documentary form.
“It is information that you will have to create, so there’s expense in that,” said Ms Brown, adding that “the sheer volume that might be requested will just cost money to deal with”.
She says she has seen a request, for example, that asked for certain company information – including a very broad range of documents– stretching back over 10 years.
Information may be held in different places and in a range of forms, so someone will have to spend time working out where all the different bits of information are before collating them.
Once the broad categories of information have been extracted, it will need to be reviewed and, changes – such as making sure it complies with data protection laws – may be needed.
“Then you need to get it into a form which responds to the questions that the regulator has asked you,” Ms Brown adds.
“We've seen cases where clients have effectively had someone – one of their team – working on it full time, which means that they are therefore not doing their day job. And that has a cost – management time has a cost,” she says.
