The Pensions Regulator is prepared to deploy tough new powers promised by the Department for Work and Pensions’ defined benefit white paper, although it admitted that there will be a high bar for beginning any criminal proceedings against sponsoring employers.
Speaking to Pensions Expert, the watchdog’s executive director of frontline regulation Nicola Parish welcomed the addition of criminal sanctions against bosses guilty of wilful or grossly reckless behaviour in relation to their schemes.
Political impetus behind the introduction of fines is undeniably strong, and as a Conservative manifesto pledge they are likely to be brought into law. However, the industry is less sure of their merits – several experts questioned whether they could actually be proven in evidence to the Work and Pensions Committee earlier this month.
The thing you have to prove beyond reasonable doubt is what someone was intending to do and how they were feeling when they acted
Rosalind Connor, Arc Pensions Law
Parish, however, is confident that the suite of new measures will provide a credible threat to negligent employers. “We very much support the proposals in the white paper for punitive fines. It will enable us to better protect members and also to hold sponsoring employers to account,” she said.
“We will need to ensure that those powers are proportionate and that we can use them in practice,” Parish added.
Bar is set high
The same political pressure that is bringing criminal sanctions into being will also expect to see them being used.
“In terms of whether we could have used them in particular cases, it’s hard to say at the moment because we don’t really know what they’re going to end up looking like” said Parish. “What we do know is that where those fines will attach to, for example, criminal powers then we expect there to be quite a high bar in order to bring prosecutions,” she said.
The regulator’s former executive director of regulatory policy Andrew Warwick-Thompson, now CEO of the LGPS Central pool, agreed with Parish, but suggested that the bar cannot be so high as to make the sanctions inapplicable to a crisis in the vein of BHS or Carillion.
“We can’t yet say if BHS or Carillion would have been caught by such legislation,” he said, but added: “There seems little point in the legislation if the directors in those two cases would not be caught – in that case, what other harm is parliament seeking to prevent with the legislation?”
Better powers already exist
To some extent, the watchdog’s powers do not have to be used to influence pensions.
For example, Parish said that while the regulator’s section 231 powers have not been used in full, with no cases to date having been heard by the determinations panel, the threat has had a significant impact on scheme behaviour.
But for some experts, the very fact that the regulator’s current powers are acting as a deterrent underlines the futility of introducing a criminal sanction.
“Contribution notices have seriously affected behaviour and I seriously don’t think this will make any difference,” said Rosalind Connor, a partner at Arc Pensions Law, adding that people are already “terrified” of incurring large personal liabilities.
“If someone issued a fine against me for tens of millions of pounds that would ruin my life,” she said.
Proving a guilty mind
Much of the technical difficulty in enforcing criminal sanctions will stem from the higher burden of proof associated with criminal law. Civil cases are decided ‘on the balance of probabilities’, whereas criminal convictions must be backed up by proof ‘beyond reasonable doubt’.
“One of the reasons the regulator pushed for section 72 notices not to be criminal is it’s easier to use,” said Connor.
While details are yet to be worked out, Connor also pointed to the wording of “wilful or grossly reckless” as a further barrier to effective prosecution.
“Being reckless means you thought about it,” she said. “The thing you have to prove beyond reasonable doubt is what someone was intending to do and how they were feeling when they acted.”
Fines may scare sponsors
Of course, the very threat of criminal prosecutions, whether empty or not, may still influence behaviour.
“TPR has demonstrated its willingness to pursue criminal proceedings for information failings, notably against Dominic Chappell and Humphrey Smith,” said Darren Redmayne, managing director at covenant specialists Lincoln Pensions.
He added: “Despite the challenges of enforcement, the risk to individuals of such sanctions should help ensure appropriate consideration is given to pension schemes.”
