Under current UK pensions legislation, the Pensions Regulator (the “Regulator”) can have the power to enter private homes used by, or by the permission of, the occupier for the purposes of trade or business. The existing provisions, which have been in place since 2005, allow the Regulator to enter some premises at any reasonable time, in order to gather information during certain, limited statutory investigations. However, the Regulator is having its information gathering and inspection powers extended by the Pensions Schemes Act 2021 due to come into force in Autumn 2021. In light of the Covid-related switch to home working in 2020, and with many companies exploring whether to make a more permanent shift to their employees working from home, we have taken a look at what Regulator powers businesses (and employees) should be mindful of, both in the existing law and in the upcoming legal changes.

The Current Power

Since 2005, the Regulator has had the power to enter a premises in certain circumstances set out in the Pensions Act 2004, in order to investigate compliance with particular areas of pensions law affecting workplace pension schemes used for automatic enrolment purposes (as well as certain areas of compliance applying to occupational pension schemes, also described below).

An inspector can enter a premises where they have reasonable grounds to believe that there are documents (either electronic or physical) relating to an employer having failed to comply with its automatic enrolment obligations. All businesses with UK resident employees must comply with statutory requirements to enrol their employees into a workplace pension scheme, contributing a minimum level of pension contributions to that scheme for each employee. For that reason, all businesses with UK resident employees have the potential to fall foul of this type of investigation from the Regulator if they fail to comply with their obligations. The Regulator can also enter a premises on the grounds that it suspects that an employer of a defined benefit pension scheme has not complied with its statutory obligations to fund the scheme. There are other grounds for Regulator inspection that relate to the administration of a pension scheme but, for most businesses, non-compliance with automatic enrolment requirement is the key statutory failing that will attract Regulator investigation under the current law. While the law does exempt homes (as “private dwellings”) from inspection, this only applies where the dwelling is not used by the occupier for the purposes of a trade or business.

The question of whether the occupier (such as an employee when working from home due to Covid) is using their home for trade or business is open to interpretation. If an employee is working from home, or even taking files, documents or a work laptop home with them to work from in the evening, it is possible that they would be viewed as using their home for trade or business. This would mean that they would no longer be able to rely on the exemption, bringing them within the scope of the Regulator’s power to enter.

When one of the Regulator’s inspectors enters a premises using this Regulator power, he or she can make any examinations or inquiries necessary to further their investigation. The inspector can also require any people present at the premises to produce or secure documents, they can make copies of those documents and also take the documents away with them. Inspectors can also require that electronic documents be sent to them or printed/copied so that the inspector can take control of them. In addition to this, the inspector can ask questions to any person present at the premises that there is reasonable cause to believe has relevant information.

If any person does not answer the inspector’s questions, does not produce or secure any document required, or if any person in any way intentionally obstructs or delays the inspector from entering the premises to gather information, they can be punished. If they do not have a reasonable excuse for their obstructive actions, the punishment can be imprisonment of up to two years and/or a fine of up to £5,000.

The Impact of Covid-19

In practice, prior to Covid-19, the Regulator is unlikely to have had reason to inspect employees’ homes as few people routinely worked from home. The Regulator has in fact only inspected six premises in total using its information gathering powers since 2005. However, the situation in the world of work has changed and the Regulator’s approach may have to change as a result. Home working has been prevalent during the pandemic, with many people working from home full-time and taking documents and computers home to do so. This continued use of homes for trade or business, although encouraged/enforced by government regulations, could mean that the Regulator becomes able to use its powers to enter people’s homes because, increasingly, that is where the electronic and paper files can be found.

The Widening of Regulator Powers

The Pension Schemes Act 2021 (the “PSA”) will widen the power of the Regulator to enter premises when it comes into force. For most businesses, the likelihood of inspection of premises being necessary to enforce compliance with automatic enrolment is very low.

However, for employers and groups sponsoring UK defined benefits pension schemes, the Regulator is getting the power under the PSA to enter premises in relation to any “moral hazard” (also known as “anti-avoidance”) investigations.

Moral hazard powers are, broadly, the two powers the Regulator has to require third parties to pay money into a UK defined benefits scheme following a period of investigation. Targets of these powers can be any person or company who is connected and/or associated with the scheme employer(s). The Regulator can impose a Contribution Notice where it reasonably determines that the scheme has been put at risk by any corporate activity in the past six years. The Regulator can also look back two years to impose Financial Support Directions on service companies or “insufficiently resourced” scheme employers, requiring the target to fund or provide a guarantee to the scheme, but again only if reasonable to do so.

All of this means that the Regulator’s potential power to enter homes, as well as business premises, will extend to its moral hazard investigations and therefore, should be of note to businesses who have conducted or will conduct any type of corporate activity where a defined benefit pension scheme is involved.

What Businesses Can Do

Employers may wish to assess the robustness of their policies on employees taking documents and work computers home, ensuring new policies are put in place and maintained if needed. They may also wish to put in place systems to record which documents are taken out of the office to ensure that they have an inventory of where documents and machines are located at any time. That way, they can be better placed to provide the Regulator with the information it needs when it asks for it and hopefully avoid any use of the Regulator’s potential power to enter homes.

Businesses may also wish to take legal advice or arrange for legal advice for their employees regarding their employee’s rights, should the Regulator wish to enter their homes to gather information. Businesses might elect to inform their employees of the existence of these Regulator powers so that the employees are made aware of the potential for the Regulator to enter their homes as a result of their home working, and so they are aware of their obligation to comply if inspectors make requests for information or access, and that it could be a criminal offence intentionally to destroy or conceal relevant documents.

Read Anne-Marie and Danyal’s article in Fresh Business Thinking. A version of this article has also now been published in Workplace Insight.