The Pensions Regulator has published a draft prosecution policy for consultation, which explains how and under what circumstances TPR will pursue the use of its criminal prosecution powers. This briefing highlights some of the offences which carry the risk of criminal prosecution, when and why individuals may be the subject of that prosecution, and our thoughts on TPR’s likely approach to future offences.

Introduction

The Pensions Regulator (TPR) has published a draft prosecution policy for consultation, which explains how and under what circumstances TPR will pursue the use of its criminal prosecution powers. As individuals and companies can be prosecuted for workplace pension offences, this is likely to be of particular interest to trustees, trustee directors, sponsoring employers and those in employer managerial positions, who could face sanctions for offences committed by their organisation. 

This briefing highlights some of the offences which carry the risk of criminal prosecution, when and why individuals may be the subject of that prosecution, and our thoughts on TPR’s likely approach to future offences.

Prosecution powers

TPR’s enforcement powers include the ability to pursue a criminal prosecution or recommend that the police issue a formal caution. These are options which TPR may use as an alternative to, or in conjunction with, its civil enforcement powers, such as issuing improvement notices, imposing civil penalties, and exercising its moral hazard powers. 

We are not aware of any instances in which TPR has yet pursued the use of its criminal enforcement options, however the publication of this prosecution strategy may indicate that TPR is more likely to consider these powers in the future. 

A number of the offences which carry the risk of criminal prosecution should be noted, as they could be committed as a result of inattention or delay as well as by active misconduct. These include:

  • failure to comply with automatic enrolment duties;
  • neglecting or refusing to provide information, produce a document or provide information in the context of an investigation by TPR; and
  • exceeding the permitted level of employer-related investment.

As smaller employers reach their auto-enrolment staging dates, TPR is likely to be increasingly focussed on breaches of auto-enrolment obligations. Employers should ensure that they know what their staging date is, and what steps they need to take to ensure compliance in respect of their employees. 

TPR’s prosecution powers also extend to deliberate acts and omissions, such as delaying or obstructing an inspection, providing false or misleading information, and fraudulent evasion of the duty to pass on employee contributions, both in the context of auto-enrolment compliance and in the wider context of ongoing scheme governance obligations. 

The penalties for criminal offences can depend on the nature and seriousness of the offence, but include the imposition of fines, imprisonment for a period of up to two years, or both. 

Points to consider

TPR’s draft policy makes clear that individuals and corporate entities can be liable for one another’s actions. If an offence is committed by an individual whose position within a company is sufficiently senior that he or she is the “directing mind and will”, then the company could also be the subject of prosecution. Similarly, senior members of staff can be prosecuted if they have consented to, participated in or caused by neglect an offence of their employer. 

In relation to deciding who should be the subject of a criminal prosecution, TPR emphasises that one factor will be maximising the deterrent effect. Managerial staff should therefore be aware that TPR may consider individual prosecutions to be more effective, considering the direct repercussions, and be particularly alive to issues such as provision of information, monitoring of investments and compliance with auto-enrolment. 

For less serious breaches of the law, TPR indicates that it may refer a case to the police and recommend the issue of a formal caution. Again, the emphasis of TPR’s policy is on the deterrent effect of the measure which it takes and it therefore seems likely that a caution will be used only where it constitutes a sufficient disincentive as to the repeat commission of an offence. For serious or systematic breaches, it appears that prosecution is a more likely sanction. 

Whether TPR decides to pursue prosecution or a caution, it must meet a two-stage test, comprising the evidential stage and the public interest stage.

  • First, there must be sufficient evidence to provide a realistic prospect of conviction. A case which does not meet this test cannot be prosecuted, no matter how serious the circumstances.
  • Second, if there is sufficient evidence to justify prosecution, TPR must consider whether a prosecution is in the public interest. Factors which can help determine this include: 
     
    • the seriousness of the offence;
    • the level of culpability of the suspect;
    • the harm caused to the victim;
    • whether is prosecution proportionate; and
    • whether sources of information require protecting?

As the threshold for pursuing either of these formal sanctions is relatively high, it is likely that the consideration of deterrent will determine which is sought. Instances of deliberate or repeated misconduct are likely to attract prosecution, and first-time or less significant breaches will be more likely to receive a caution. A caution would appear on the offender’s criminal record, could influence TPR in any future decision as to prosecution, and in the event of a subsequent prosecution could be cited as evidence. 

It is interesting to note that in England, TPR is responsible both for the investigation and prosecution of offences as opposed to the usual course of criminal proceedings in which an investigator refers a case to another body for prosecution, for example referral by the police to the Crown Prosecution Service. This dual role is also assumed by the Financial Conduct Authority (the FCA) in relation to certain regulatory offences within its jurisdiction, such as failing to co-operate with an FCA investigation. 

Trustees, employers and advisers have a duty to report breaches of law to TPR, and the guidance issued by TPR in connection with this duty emphasises that any breaches which carry a criminal penalty will always be of material significance to TPR, and should always be reported. 

Next steps

The closing date for the consultation is 19 February 2016. TPR has in particular asked for feedback in relation to the clarity of its explained approach to prosecution, and the fairness, reasonableness and proportionality of its approach. 

This is an opportunity for trustees and employers to review their governance procedures to ensure that sufficient monitoring and checks are in place to avoid inadvertent breaches of the law. We can help you achieve this by providing training to supplement trustees’ knowledge and understanding, reviewing your existing governance framework, and identifying areas such as record keeping and investment management which are likely to be the subject of TPR scrutiny. 

TPR has emphasised that prosecution will be an option only if compliance cannot be achieved by way of the provision of advice and support. If you are concerned that an act or omission may attract the interest of TPR’s enforcement powers, we can help with the process of assessing that risk and, if necessary, engaging with TPR to seek to resolve the issue without the need for formal sanction.