The Pensions Regulator (TPR) has powers to act where it believes an employer is deliberately attempting to avoid their pension obligations, leaving the Pension Protection Fund to pick up their pension liabilities. To protect scheme benefits and reduce the exposure of the PPF to claims for compensation, it can issue any of the following;
- Contribution notices. These allow TPR to direct that, where there is a deliberate attempt to avoid a statutory debt, those involved must pay an amount up to the full statutory debt either to the scheme or to the board of the Pension Protection Fund.
- Financial support directions. These require financial support to be put in place for an underfunded scheme where TPR concludes that the sponsoring employer is either a service company or is insufficiently resourced.
- Restoration orders. If there has been a transaction at an undervalue involving the scheme's assets, these allow TPR to take action to have the assets (or their equivalent value) restored to the scheme.(See - TPR, Our powers: acting against avoidance).
A clearance procedure is available for anyone who wishes to confirm that they will not be subject to either a contribution notice or a financial support direction following a business transaction.
In its December 2016 report on DB schemes, the Work and Pensions Select Committee recommended that reforms should enable TPR to intervene sooner when difficulties become apparent. It recommended that the Government should consult on new rules for situations where TPR clearance of major corporate transactions would be mandatory and that TPR should be able to impose punitive fines that could treble the amount payable under TPR’s existing anti-avoidance powers (press release, 21 December 2016).
In its February 2017 Green Paper, Security and Sustainability in Defined Benefit Pension Schemes, the Government said that the “overarching view of virtually all stakeholders is that the regulatory regime for DB pensions is satisfactory” but that there might be a case for “limited changes to the regulation of DB provision to help employers and trustees manage liabilities more effectively in some of the circumstances that exist” (para 139-40). It asked for views on reforms that had been suggested, including:
- Proactive compulsory clearance of certain corporate activities in limited circumstances;
- Levying substantial fines on companies for corporate transactions which have a detrimental impact on schemes; and
- Widening the criteria for Regulatory Apportionment Arrangements.
In its White Paper on 19 March 2018, the Government said it would strengthen the regulatory framework and the Regulator’s powers to:
- Give the Regulator powers to punish those who deliberately put their pension scheme at risk by introducing punitive fines;
- Legislate to introduce a criminal offence to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme and, build on the existing process to support the disqualification of company directors; and
- Work with the Regulator to strengthen the existing notifiable events framework and voluntary clearance regime so that employers have appropriate regard to pension considerations in any relevant corporate transactions. This includes improving the effectiveness and efficiency of the Regulator’s existing anti-avoidance powers. We will work with relevant parties to ensure that these measures do not have an adverse effect on legitimate business activity and the wider economy.
- Legislate to have the Regulator some of the information-gathering powers already in place for automatic enrolment and Master Trusts to its Defined Benefit and Defined Contribution functions, including the power to compel any person to submit to an interview, the power to issue civil sanctions for non-compliance and an inspection power. (Cm 9591, chapter 1).
In its February 2019 response to consultation on Protecting defined benefit pension schemes – a stronger Pensions Regulator, it announced proposals to improve TPR’s powers so that it:
- Can be more proactive and get involved earlier when sponsoring employers make changes which could impact the pension scheme;
- Have the necessary powers to be able to obtain the right information about a scheme and its sponsoring employer in a timely manner;
- Are able to gain redress for pension schemes and its members when things go wrong; and
- Deter reckless behaviours.
The Financial Conduct Authority (FCA) and Pensions Regulator (TPR) launched a joint regulatory strategy on 18 October 2019.
For more on the White Paper proposals more generally, see CBP-8219 Defined Benefit Pension Schemes (20 March 2018).