On 11 February 2019 the Government published its response to the Department for Work & Pensions' consultation on strengthening The Pension Regulator's (TPR's) powers. In many cases the Government intends to proceed as originally proposed, as soon as Parliamentary time allows. The measures include changes to the notifiable events framework, requiring employers to issue a Declaration of Intent to forewarn trustees and TPR of specified corporate transactions, changes to the Contribution Notice (CN) and Financial Support Direction (FSD) (moral hazard) provisions and extending TPR's information-gathering powers. All of these provisions will be backed by more significant fining powers. Sponsoring employers will face new criminal sanctions for "wilful or reckless behaviour in relation to a pension scheme" or "failure to comply with a Contribution Notice".
The Government will introduce two new notifiable events, rather than the four originally proposed. These are "the sale of a material proportion of the business or assets of a scheme employer which has funding responsibility for at least 20% of the scheme's liabilities", and "granting a security on a debt to give [another creditor] priority over debt to the scheme".
The proposals for obtaining pre-appointment insolvency/restructuring advice and for the significant restructuring of the company's board or management to be notifiable events have been dropped.
Declaration of Intent
Both of the new notifiable events and the existing "sale of controlling interest in a sponsor" will trigger a new requirement for "corporate planners" to provide trustees and TPR with a document which is intended to estimate the impact of the proposals and facilitate putting mitigation in place.
The Government will be working with TPR and industry to consider additional aspects further – including the timing of notifiable events, the effect of changes on business, the content of the Declaration and the drawing up of new guidance and a revised Code of Practice.
Moral hazard powers
The Government intends to overhaul TPR's CN and FSD powers, including the addition of two new limbs to the material detriment test for triggering a CN – an act that either reduces the amount the scheme could recover on an hypothetical insolvency or leads to the value of the employer providing materially less coverage of a ‘section 75' debt. On FSDs, the Government intends to replace the "insufficiently resourced" test with one that is "scheme-focussed" and to amend the definition of what is meant by a "service company" but the paper gives little more detail. The Government will not, however, change the lookback period – at least not for now.
The Government document sets out a helpful table summarising proposed new and amended offences, penalties and at whom the new powers are targeted.
Uppermost in these is a criminal offence – carrying a potential seven year prison term and/or unlimited fine for "wilful and reckless behaviour in relation to a pension scheme" though it does not go on to define these terms. Failure to comply with a CN can also bring an unlimited fine. However, in both cases an alternative civil sanction of a fine of up to £1 million forms part of TPR's arsenal. The £1 million level of fine is also available in cases where the relevant party fails to comply with a FSD, the notifiable events or declaration of intent requirements or "knowingly or recklessly providing false information to trustees or [TPR]".
A new power for TPR to obtain information (and carry out inspections) is supported by a combination of significant fixed and escalating penalties.