Defined benefit (DB) pension scheme sponsors have been encouraged to factor the new risks presented by The Pensions Regulator’s (TPR) extended powers into business decision making.

LCP outlined five ‘crucial’ steps that aim to help company directors avoid “unwanted regulator scrutiny” and potential criminal penalties, and manage reputational risk as the new powers come into force.

The extended powers coming into force from 1 October include two new criminal offences, an expanded set of financial penalties, and new interview and inspection powers, which LCP stated would create a “much bigger spotlight” on corporate activity.

A Department for Work and Pensions (DWP) impact assessment estimated that the first five to 50 civil sanctions and up to five criminal convictions under the new powers will be seen by this time next year.

LCP urged schemes and their sponsors to ensure the company board is aware of the new powers and requirements, especially the additional corporate and personal risks of the new criminal offences, financial penalties and Contribution Notice tests.

Schemes were also encouraged to review their governance by putting in place checks around key business decisions that may impact the covenant support of the scheme.

The consultancy called for the consideration of how the pension checking process will be documented, and how the outcome of the impact assessment on the scheme will be communicated to key decision makers and trustees.

Sponsors should implement or update the information sharing agreement with trustees to ensure the company is providing the right information at the right time around specific agreed events, according to LCP.

Finally, LCP urged schemes and sponsors to consider potential interaction with the new Notifiable Event and the Statement of Intent requirements, and ensure that directors understand the thresholds for notification and the required timescales.

“These new powers have been a long time coming and many sponsors and trustees will have felt overwhelmed with the raft of consultations and requirements that have been published since the Pension Schemes Act became law earlier this year,” said LCP principal, Laura Amin.
 
“With the new powers raising the bar when it comes to TPR’s oversight of corporate activity, schemes need to tread carefully and cautiously to avoid falling foul of the rules.

“Companies and trustees will need to know all the detail of the new regulatory boundaries and have robust governance processes in place and records of decision-making. As the DWP figures highlight, criminal sanctions will be a reality under the new rules.
 
“Following these five steps may seem excessive when there are so many other business priorities.  But getting things right in the early days of these new powers being effective will save time and potentially reputations further down the line.”

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