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Published 29 July 2022
The Pension Schemes Act 2021 (the “Act”), which became law on 11 February 2021, has changed the pensions landscape, including by extending the Pensions Regulator (“tPR”)’s powers in a way which could impact on certain finance transactions.
The Act gives tPR additional information gathering powers to inspect premises and require a person likely to hold information relevant to the exercise of its powers to attend an interview or answer questions. In addition, there are two new grounds which make it easier for tPR to issue a contribution notice (a notice requiring a sponsoring employer and/or those associated/connected with the employer to pay money into a defined benefit (“DB”) pension scheme) and there will be changes made to the notifications that sponsoring employers of a DB pension scheme will be required to make. Most notably though, the Act introduced new criminal offences relating to DB pension schemes which includes:
These became criminal offences on 1 October 2021 and although the offences do not have retrospective effect, so tPR can only pursue parties in respect of acts/failures to act which took place on or after 1 October 2021, tPR has said in its guidance that it may take into account facts from before that date as part of its investigations (and indeed those being investigated may want to rely on the past in their defence). These new criminal offences are in addition to tPR’s ability to issue civil penalties of up to £1 million in certain circumstances.
Another key point to note is that the new criminal offences apply to any person, not just trustees and sponsoring employers of DB pension schemes. The legislation is widely drafted so this could include:
There is a defence to the two new criminal offences of “reasonable excuse”. Although reasonable excuse is not defined in the Act, it is understood that it will be for tPR to prove that an excuse is not reasonable. tPR has helpfully produced guidance on this defence and made it clear that it does not intend to prosecute ordinary commercial activity but rather to investigate intentional or reckless activity. The factors tPR will take into account include:
tPR will look at these factors in light of the reasonable knowledge a person had at the time, based on having made reasonable enquiries. tPR will also take into account certain other circumstances, such as communications with trustees and tPR.
However, it is important to remember that tPR’s guidance is guidance, not law. Also, given that there is no clearance route available in respect of the new criminal offences and criminal offences are ultimately decided by Courts, lenders may want to proceed cautiously at this stage.
Although it is for tPR to establish that a party does not have a reasonable excuse, lenders will want to be able to demonstrate, as a matter of good governance, that they do have reasonable excuse. In light of its intention not to prosecute ordinary commercial activity, tPR has recognised that lenders are entitled to pursue their commercial interests notwithstanding the (arguably incidental) impact of such conduct on any relevant DB pension scheme.
When collating evidence that they have a reasonable excuse for their actions or inactions, lenders will want to ensure they have documentary evidence and records. Lenders will want to be able to demonstrate that they have fully considered a situation and have justifiable commercial reasons for the actions or inactions chosen by them. In practice, this could include:
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