TPR aims for transparency in consolidated enforcement powers

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TPR aims for transparency in consolidated enforcement powers
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The Pensions Regulator has published a consultation on a draft enforcement policy document that aims to consolidate existing enforcement policies.

The document comes in response to a 2021 consultation into three policies introduced in response to the Pension Schemes Act, which gave the regulator expansive new powers.

The three policies in question governed overlapping powers — TPR’s approach where more than one power is available to it in response to the same event — as well as monetary penalty and information-governing powers.

We want to be clear with the pensions industry about our approach to enforcement and prosecution. With our new powers to help us ensure savers’ money is secure, we felt it was timely to review our existing policies and consolidate them where possible, so they are easier to navigate.  David Fairs, TPR

The response to that consultation, published alongside the new policy document on May 4, highlighted industry requests for a “clearer, more concise and comprehensive package of policies that cover not just these new powers, but also how they sit alongside the use of our existing powers”.

The draft policy, which consolidates a number of separate enforcement policies, emerged in response, alongside new and separate policy documents setting out TPR’s approach to monetary penalties, one each for “avoidance-type penalties” and “information requirements penalties”, which cover a new power enabling TPR to issue high fines of up to £1mn.

The regulator has also updated its prosecution policy “to bring it up to date on our approach when prosecuting criminal offences, particularly in light of the new powers introduced in the Pension Schemes Act 2021”.

David Fairs, TPR’s executive director of regulatory policy, said: “We want to be clear with the pensions industry about our approach to enforcement and prosecution. With our new powers to help us ensure savers’ money is secure, we felt it was timely to review our existing policies and consolidate them where possible, so they are easier to navigate.

“These two policies explain what targets or those affected by enforcement action should expect from TPR, from the point of our opening an investigation through to the conclusion of any enforcement action.

“We’ve simplified, consolidated and clarified the way in which our regulated community accesses important information about enforcement.”

John Wilson, head of technical, research and policy at Dalriada Trustees, said it will take time to consider the implications for professional trustees, but welcomed that TPR “has used the opportunity to not only consolidate but also simplify and clarify its guidance”.

The existing policies governing automatic enrolment, master trust authorisation and collective defined contribution schemes have not been altered. The consultation into the new combined policy closes on June 24.

Combined regulatory and enforcement policy

The regulator’s 2021 consultation drew industry requests for more clarity as to what happens when TPR’s powers overlap.

In response, it included guidance in the new combined policy covering the circumstances in which it would seek to impose a financial penalty rather than pursuing a criminal prosecution, providing a number of case examples as illustration.

The policy also covers the regulator’s approach to its information-gathering powers and the penalties for non-compliance, and explains that its approach to enforcement powers generally must be proportionate, accountable, consistent, transparent and targeted.

TPR’s priority for engagement is determined in large part by an assessment of risks and harm, and the document lays out the factors considered when deciding on the level of engagement or enforcement action.

These factors include the level of harm or risk of future harm, the size of the scheme’s liabilities, the number of members affected, the type of breach, compliance history and previous interactions with TPR or other regulatory agencies.

High fines policy

The draft policy sets out the conditions under which an act (or a failure to act) demands that a fine be issued. The fines can rise to as much as £1mn, but there are a number of bands beneath that amount to account for the varying severity of any wrongdoing.

Fines can be issued for non-payment of a contribution notice, and also for the offences of avoidance of employer debt and conduct risking accrued scheme benefits, both of which were introduced as part of the Pension Schemes Act 2021 to some controversy given the potential extent of the powers and the lack of useful examples highlighting when and how they would be used.

The three bands stretch from “lower culpability/lower harm”, which carries a penalty of between £100,000 and £400,000; through “higher culpability/lower harm or lower culpability/higher harm”, which carries a penalty of between £250,000 and £650,000; to “higher culpability/higher harm”, carrying a penalty of between £400,000 and £1mn.

The draft policy sets out examples “of features of culpability”, which include “deliberate act or failure and/or causing or encouraging another person to act or fail to act”, as well as “recklessness or negligence, including disregard of risks or lack of care, whether based on actual foresight or what could reasonably be expected to have been known”.

They also include “significant decision-making powers, responsibilities, influence and/or proximity to the decision-making”, and “holding a position of trust or being subject to professional duties”.

TPR’s assessment of harm takes into account “any negative impact on the scheme as a whole or any of its members”, whether the impact of an act is irreversible, whether it has resulted in increased reliance on employer covenant, whether it has increased the likelihood of compensation payable by the Pension Protection Fund, and whether it may undermine public confidence in pensions.

A separate document was published dealing with the regulator’s information requirements, featuring a similar banding system for fines and setting out what constitutes a breach of the notifiable events regime.

The industry criticised the extent of the new powers when they were first announced, fearing that necessary business activity would be put off out of fear that it might fall foul of the regulator. Additionally, some warned that the new notifiable events regime could have a bigger impact than the criminal powers.

In the document setting out its information requirements, TPR explained that the manner of its enforcement would vary depending on the type of offence, with intentional attempts to avoid regulatory intervention likely to attract high culpability.

By contrast, a failure by the finance director of an employer (who is also a trustee of the scheme) to inform TPR of an employer-related notifiable event that arises from lack of care will be judged less harshly, providing that employer is already engaging with the regulator about that event.

Benjamin Mercer is a senior reporter at FTAdviser's sister publication Pensions Expert