In an article last year looking at the activity of the Pensions Regulator, we commented on how it was making effective and greater use of the powers. We suggested that everyone responsible for an employer pension arrangement should be checking that they have robust and appropriate governance structures in place.

Active times

Frequent press releases from the Pensions Regulator this year have announced enforcement action. Some of these represent the first use of a power available to the Pensions Regulator.

  • On 23 January, the High Court ordered four people running scam pension schemes to repay £13.7 million to the victims of their scams.These four individuals must also pay the costs incurred by both the Pensions Regulator and the trustee appointed after the scam was discovered.

    This was the first time that the Pensions Regulator had asked a court for a restitution order under the powers granted by section 16 of the Pensions Act 2004. Such orders are available where there has been a misuse or misappropriation of the assets of a pension scheme and require steps to put the parties back in the position they were in before the misuse or misappropriation.

  • On 7 February, the Pensions Regulator confirmed that four trustees of the Pakistan International Airlines Retirement and Death Benefits Plan had been fined £500 each for failing to have the Plan's accounts audited in 2015 and 2016.

    Pension schemes have had an audit obligation since 1997 and while the fines were issued under the powers in section 10 of the Pensions Act 1995 (used to impose civil penalties) which have been used on many previous occasions, this was the first time they had been used to deal with a failure to produce audited accounts.

  • Also on 7 February, the first criminal fines for wilful failures to comply with the pensions automatic enrolment duties were handed down by Brighton Magistrates Court using the powers in section 45 of the Pensions Act 2008.

    Scotts (Tours) Oldham was ordered to pay £27,000 (plus £7,400 costs and a £120 victim surcharge). Its Managing Director was ordered to pay £4,455 plus a £120 victim surcharge. These are in addition to civil fines imposed on the company (£14,400) and the cost of paying backdated pension contributions.

    Further prosecutions under this power are ongoing (Crest Healthcare and its managing director pleaded guilty to similar offences at Brighton Magistrates Court on 7 March).

  • On 23 February the anticipated fine for Dominic Chappell was handed down by Barkingside Magistrates.Mr Chappell was fined £50,000 plus £37,000 costs and a £170 victim surcharge for his failure to provide information to the Pensions Regulator about his part in the collapse of BHS. This criminal fine was under the powers in section 72 of the Pensions Act 2004 and was the fifth such fine to be issued.

As well as press statements about these high profile cases, the Pensions Regulator also published the latest quarterly compliance and enforcement bulletin (for the period October to December 2017) in February. For the first time this was accompanied by more detailed information about the cases where enforcement powers have been used.

This additional information (which will also be published quarterly) named:

  • 4 employers who have paid an escalating penalty notice for automatic enrolment breaches but who remain non-compliant, and 29 employers who have received escalating penalty notices which they have not paid.The sums involved range from £500 to £35,000.

  • 39 of the 49 schemes penalised for failing to complete a chair's statement (required from occupational schemes providing defined contribution benefits).These show that the penalties ranged from £500 to the maximum £2,000 permitted by law.Four professional trustees were fined – and it was the schemes they were involved with which received the largest penalties.

The quarterly compliance and enforcement report also shows that:

  • 7,435 fixed notice penalties of £400 were issued between October and December 2017 for automatic enrolment duty failures, and

  • 1,440 daily escalating penalties of between £50 and £10,000 per day were issued for automatic enrolment duty failures.How many of these will end up being named on subsequent statements issued by the Pensions Regulator?

Over 20% of the penalties issued for automatic enrolment non-compliance were issued in the period October to December 2017. Fixed notice automatic enrolment penalties alone will have raised an income of nearly £3 million in that period.

Parliamentary Work and Pensions Committee and the White Paper

Despite this level of activity, there are some, including the vocal Chairman of the Parliamentary Work and Pensions Committee (Frank Field), who would like the Pensions Regulator to be more active.

While regulators operate independently from Parliament (a core feature of a good regulatory regime is independence), they are subject to political oversight. And in that oversight, objectives and priorities can be shaped to reflect the political agendas of the day.

The Parliamentary Work and Pensions Committee has been heavily involved in the fall out from the collapse of BHS and Carillion and also in the pensions changes required to facilitate the restructuring of British Steel. Trustees, advisers and corporate executives and directors have all been summoned to appear before it.

The White Paper "Protecting Defined Benefit Pension Schemes" (the subject of a separate Clyde & Co article) which was published earlier this month (March 2018) by the Department for Work and Pensions is a reaction to the investigations by the Committee and also to commitments made by the UK Prime Minister. Improved powers for the Pensions Regulator are proposed, although these focus on tougher sanctions for those whose actions create additional risks for defined benefit pension schemes.

This seems to recognise that the Pensions Regulator already has significant powers at its disposal. What has been lacking, however, have been clear political statements encouraging tougher penalties where the powers are used. The proposed changes seem to address this.

The automatic enrolment regime – and the master trust arrangements which underpin that regime - will also see tougher powers. As more people are now members of such arrangements (and these arrangements will be the main pension arrangements for most people for years to come), this is not surprising.

Conclusions

Employers and directors of sponsoring employers (particularly of defined benefits schemes) should take heed of the increased use of the regulatory powers and the increased sanctions which follow where they are used.

While the White Paper could lead to tougher penalties, powers and penalties are only as good as the ability of the regulatory authorities to pursue them and of the courts to impose them. Whether the Pensions Regulator will be given sufficient resources to do so remains to be seen.