UK Pensions Regulator sets out planned approach to prosecuting new criminal offences

TPR has published a draft policy and associated consultation document (12 page / 282KB PDF) outlining how it will use the new powers to investigate and prosecute those who avoid employer debts to pension schemes or put savers’ pensions at risk.

The regulator said the new criminal offences were not intended to achieve a “fundamental change in commercial norms or accepted standards of corporate behaviour”, but instead would address more serious intentional or reckless conduct that was already within the scope of contribution notice powers. It said it would use the powers where the seriousness of the behaviour warranted the intervention to further its statutory objectives and protect savers.

Pensions expert Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law, said it was helpful that the consultation was published only a month after the legislation came into force on 11 February 2021.

“It will alleviate concerns in those cases where circumstances are clearly not intended to be caught. However, there are many other circumstances in which difficult judgement calls will need to be made. It remains to be seen whether the policy will give schemes and advisers the confidence needed to act or whether there are still too many ambiguities which result in lost opportunities and less favourable outcomes for members,” Saunders said.

According to the draft policy document, TPR is expecting to consider a case for prosecution in broadly the same circumstances where it would consider imposing a contribution notice, which requires a cash payment to a pensions scheme. It said it would consider prosecution in some cases where it would not pursue a contribution notice, but the deterrent effect of a prosecution would be in the public interest; or would decide to pursue a contribution notice instead of a prosecution.

TPR said in deciding whether a person has committed the offence of conduct risking accrued scheme benefits, it will apply its guidance on the "material detriment" test for contribution notices. The legal burden will be on TPR to prove the absence of a reasonable excuse for an act or omission leading to the offence.

Those who could potentially be prosecuted under the new powers include professional advisers to pension schemes, although TPR said in most instances an adviser acting in accordance with their professional duties, conduct obligations and ethical standards was likely to have a reasonable excuse for their actions.

However, it outlined examples of where it would consider prosecuting an adviser, such as where a lawyer helps an employer to lay a trail of false evidence designed to hide the employer’s true intention for their actions, or where an accountant knowingly assists in a material misstatement of the employer’s accounts in the knowledge these will be relied on to support a going concern status in an upcoming sales process which caused material detriment.

The draft policy outlined several other examples of cases where TPR would seek prosecution, such as the purchase of an employer with no further investment into its business, subsequent mismanagement of the company, and extraction of value before the company went into administration; the stripping of assets from an employer resulting in substantial weakening of the support for the scheme; or taking steps to bring about the unnecessary insolvency of the scheme employer with the intention of buying the employer’s business without the pension scheme.

Pensions expert Simon Tyler of Pinsent Masons said the examples were helpful.

“But as is usual in these cases, the examples chosen are the easy rather than the difficult cases. In practice, much will come down to judgement calls on matters of degree, for example in determining what constitutes ‘asset-stripping’, and what is 'unnecessary' and 'unreasonable' and 'unfair'. We do recognise that it is difficult for guidance to cover all the circumstances that may need to be taken into account,” Tyler said.

TPR said the clearance process – which gives assurance that TPR will not use its anti-avoidance powers to issue either contribution notices or financial support directions in relation to a defined benefit occupational pension scheme and a particular event – would not apply to the new criminal powers.

“This is unlikely to prove a problem in practice. The regulator has recognised the overlap between contribution notices and the new offences. Therefore, clearance in relation to a contribution notice would make a prosecution in relation to the same behaviour unlikely,” Tyler said.

“TPR has made the bold statement that it does not expect the new offences to change behaviour. However, employer, trustees and advisers will all be extremely cautious about doing anything that might lead to a criminal prosecution. Unduly cautious behaviour is not always ultimately in the best interests of scheme members. Guidance without a proper clearance process can only go so far in resolving this problem,” Tyler said.

TPR said the policy may not necessarily reflect the interpretation of other bodies with powers to prosecute under the new offences, including the Secretary of State for Work and Pensions, the Director of Public Prosecutions, the Crown Office and Procurator Fiscal Service (in Scotland) or the Public Prosecution Service (in Northern Ireland). However, it expected to be informed and consulted before any prosecution is brought.

The consultation process on the draft policy closes on 22 April 2021.