Pump Court

Defined benefit pension schemes new criminal offences and investigative powers

Blog 15 Feb 21

After a long wait the Pension Schemes Act 2021 (‘PSA’) received Royal Assent on 11th February. From the criminal practitioner’s viewpoint, the PSA will introduce new offences with greater penalties as well as a civil penalties system with appeals through the First-tier Tribunal.

New offences are inserted into the Pensions Act 2004 (‘PA04’) for ‘avoiding employer debt’ (s58A) and for ‘conduct risking accrued scheme benefit’ (s58B) by s107 PSA. Both carry a maximum penalty of 7 years imprisonment.

7 years represents a significant increase from the previous maximum of 2 years for offences under PA04. TPR has recently prosecuted the more serious pensions criminality under the Fraud Act 2006 (maximum penalty 10 years) but the new offences have a wide ambit and may be preferred going forwards. No doubt like other regulators TPR will also suffer an element of ‘use it or lose it’ pressure in relation to offences under its own statutes.

The offence under s58B is particularly far reaching. A person commits the offence if he does an act or engages in a course of conduct that ‘detrimentally affects in a material way the likelihood of accrued scheme benefits being received’. This covers a spectrum all the way from fraud down to poor investment decisions and appears to include situations where no actual detrimental effect has taken place.

The offence covers failures to act as well as positive actions- s58B (3) and it is wide enough to catch financial advisors and auditors as well as trustees and managers (although insolvency practitioners are spared- s58B (8)).

One issue for TPR to consider is the reasonable excuse defence for both these offences- for example at s58B (2)(c) the offence is only committed if ‘…the person did not have a reasonable excuse for doing the act or engaging in the course of conduct…’.

The statute does not specifically indicate where the burden of proving that reasonable excuse lies. Previous first instance decisions under PA04 (for example TPR v Chappell- HHJ Henson QC) have decided that the legal burden is on the defendant to the civil standard but Courts may be more reluctant to reverse the burden in a situation where the defendant faces a potential 7 years in custody.

No doubt there will be defence arguments that a reverse burden under s58 PA04 infringes Article 6. The wording in s58 does not clearly specify that the burden lies on the defendant (unlike s92 Trade Marks Act 1994 where the reverse burden has been approved for an offence carrying 10 years maximum – R v Johnstone [2003] UKHL 28).

The prospect of extensive legal argument and/or of facing the burden of proving that a defendant did not have a reasonable excuse may well encourage TPR towards the new civil financial penalty provisions under section 88A PA04 (inserted by s115 PSA).  Under s58C and s58D PA04 (inserted by s107 (3) PSA) if TPR is of the ‘opinion’ that a person has acted to avoid employer debt or risked accrued scheme benefit the regulator can issue a financial penalty notice up to £1 million. This applies to individuals and corporates and TPR is given powers to recover the penalty through the County Courts Act 1984.

TPRs powers in relation to a failure to comply with a contribution notice have been increased. The Determinations Panel at TPR issues contribution notices under s38 PA04 where a scheme has been detrimentally affected by the conduct of an individual or a corporate. A contribution notice is a civil penalty and is enforceable in the civil courts. Now under s42A PA04 (inserted by s106 (4) PSA) a failure, without reasonable excuse, to pay a contribution notice is also a criminal offence carrying an unlimited fine.

The offence of providing false or misleading information to the regulator under s80 PA04 remains unchanged with a maximum 2 years on indictment. However, the new financial provisions of s88A PA04 also apply to s80 with the maximum civil penalty of £1 million. Further, s80 PA04 has been enhanced to include s88A financial penalties for providing false or misleading information to trustees or managers – again this may catch financial advisors and auditors.

Information gathering powers have been reinforced. Under s72 PA04 TPR has power to compel information from individuals and corporates by issuing a s72 notice. A new power to require a person to attend interview and provide explanations has been created under s72A (inserted by s110 PSA).

A failure to comply with s72 PA04 without reasonable excuse remains a summary offence under s77 PA04 but TPRs hand has been strengthened by s77A (inserted by s112 PSA) whereby fixed penalties of up to £50,000 can be issued for a failure to respond. A continuing failure then allows TPR to impose an escalating penalty notice of up to £10,000 per day without the need to trouble the criminal courts.

Pensions are an area of considerable public concerns and well-publicised corporate failures have only added to the pressure on the Government to act. The Pension Schemes Act 2021 significantly increases the powers of the Regulator and no doubt we will see TPR demonstrating an increasingly proactive enforcement role in the coming years.

Blog | 15 Feb 21

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Alex Stein

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