Partner Anne-Marie Winton discusses new Pensions Bill in The Times
One of the few surprises in the recent Queen’s Speech was a piece of draft legislation with wide-ranging potential impact — the pension schemes bill.
Although a general election almost certainly needs to occur before it passes through parliament, the bill could become law early next year. Its aims are to protect pension schemes and their members against unlawful conduct and to strengthen the Pensions Regulator’s powers in relation to corporate activity.
The centrepiece of the bill is an overhaul of the regulator’s moral hazard powers. Failure to comply with the new law could result in punitive fines and potential criminal sanctions against directors and scheme employers.
There are going to be two new criminal offences. One will be aimed at individuals and companies that take steps to reduce or prevent the recovery of debts due to pension schemes under section 75 of the Pensions Act 1995. The other will target those who engage in conduct that materially detriments the likelihood of scheme benefits from being received without reasonable excuse. Convictions will result in prison sentences of up to seven years and unlimited fines.
For defined benefit pension schemes, there are proposed changes to contribution notices, with triggers introduced: materially reducing the amount of debt likely to be recovered by a pension scheme on employer insolvency and materially reducing the value of a scheme employer’s resources relative to the underfunding in the pension scheme.
Either would cause the regulator to use its moral hazard powers to impose joint and several liability on an employer’s group. Failing to comply with a contribution notice would be punishable by an unlimited fine.
The regulator is required by law to be reasonable, and this new legislation does fully support its commitment to be clearer, quicker and tougher. There can be little doubt that the prospect of heavy fines and significant criminal sanctions, together with stronger moral hazard powers, should act as a strong deterrent to behaviour that would be a risk to pension savers.
There will also be a fine of up to £1 million for knowingly and/ or recklessly providing misleading information to the regulator or — in some circumstances — to the pension scheme trustees.
The introduction of penalties will “be a swifter and proportionate alternative to criminal prosecution in some cases,” according to Charles Counsell, the regulator’s chief executive. As a result, group companies and their directors not only need to be aware of the increased penalties, but also must ensure that they fully comply with the legislation when it is eventually passed.
The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. Arc Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.