Click here to download full article.
The Pensions Regulator ("TPR") has wide-ranging statutory powers to intervene in the running of work-based pension schemes1. The most prominent of these are the so-called "moral hazard powers". To date, TPR has used these powers sparingly and indicated that it is primarily concerned with 'larger' defined benefit ("DB") pension schemes. But the landscape appears to be changing.
Following the administration of BHS in the Spring, and the ongoing negotiations with Sir Philip Green in respect of the BHS pension scheme, TPR has been very much in the public eye. Depending on the outcome of these negotiations, the Government has hinted at extending TPR's powers.
Additionally, 2016 has shown TPR's appetite to intervene on behalf of smaller DB schemes. It has also issued a record amount of fines relating to defined contribution ("DC") pension schemes. With TPR's intervention in all types of pension scheme seemingly on the increase, employers should ensure that they and the trustees, whose costs the employer ultimately picks up, are compliant with their statutory duties, whether this be under a DB or DC scheme, to avoid any fines or intervention by a more proactive Pensions Regulator.
Moral hazard powers
TPR may exercise its moral hazard powers to prevent an employer of a DB scheme avoiding their funding obligations, leaving the Pension Protection Fund ("PPF") to pick up their pension liabilities. In particular, TPR has the power to issue a contribution notice ("CN")2 or a financial support direction ("FSD")3. For all their notoriety, since their introduction under the Pensions Act 2004, TPR has only issued CNs and FSDs in a very limited number of circumstances (currently three CNs and four FSDs). However, following the issuance of warning notices4 in connection with the BHS pension scheme, these figures could change.
The BHS controversy has caused the Government to hint at a potential extension of the powers of TPR. However, no clear indication has been given as to what form this might take. Potential options include: broadening the scope of TPR's powers to seize assets other than cash, or giving TPR further powers to intervene in transactions. TPR has shown no obvious desire to acquire additional powers, as with these additional powers would come additional responsibilities and workload. Whether the Government decides to grant TPR further powers may well hinge on whether a satisfactory outcome (from the Government’s perspective) can be reached regarding the BHS pension scheme.
1 Legislation defines work-based pensions as occupational pension schemes, personal pension schemes and stakeholder pension schemes with direct payment arrangements in place for employees.
2 A CN requires a specified sum of money to be paid to the pension scheme (or the PPF).
3 A FSD requires the recipient to put in place financial support for the pension scheme, which must remain in place while the scheme is in existence.
4 A warning notice specifies the power (e.g. issuing a CN or FSD) that TPR wishes to exercise and provides supporting information and evidence. The recipient of a warning notice has the opportunity to respond before a decision is made by TPR's Determination Panel as to whether TPR may exercise such power.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2016 White & Case LLP