DWP publishes consultation on TPR’s Contribution Notice and info gathering powers

The Department for Work and Pensions (DWP) has launched a consultation on regulations around The Pensions Regulator’s (TPR) Contribution Notice and information gathering powers, following changes introduced by the Pension Schemes Act 2021.

Section 103 of the Pension Schemes Act 2021 amends section 38 of the Pensions Act 2004, introducing the ‘employer resources test’, which will work alongside the existing regime, to assess whether an act or failure to act has occurred for a section 38 Contribution Notice to be issued.

The government is seeking industry views on its proposed regulations as to what constitutes the resources of the employer, and on a suggested process to identify, calculate and verify the value of employer resources for the purposes of the employer resource test.

The DWP has proposed that the resources of the employer will be determined as normalised profits of the employer before tax, and outlined its process of calculating this within the consultation.

Its consultation also outlined the draft regulations around TPR’s information gathering power changes, including on what information interview notices should contain, modifications to how inspection powers may be utilised in multi-employer schemes, and setting out the fixed or escalating penalty rates for non-compliance with information gathering requests.

On the information contained within interview notices, the DWP proposed that should ensure the interviewee is clear as to when and where the interview will take place, information on why TPR wishes to conduct the interview, the interviewee’s rights and responsibilities, and how the information obtained can be used.

It will also list the potential consequences for the interviewee by way of sanction in the event of non-compliance.

On non-compliance penalty rates, the government proposed a single, escalating scale of penalties in the same format that exists for master trusts.

The consultation stated: “The rate for the first day on which the escalating penalty will apply will be £500, and will increase cumulatively on each subsequent day by that amount until, after 20 days, the daily rate is £10,000.

“The government accepts that this will be a significant penalty for many that are not individuals. However, to have reached the stage where an escalating penalty is applicable means that the non-compliance has continued for some time.

“The aim of TPR’s information gathering powers is to ensure it can collect the information needed to enforce pensions legislation and protect members’ benefits. A delay in its investigation can mean members’ benefits are at greater risk.”

LCP senior consultant, Francesca Bailey, said the consultation left “many questions unanswered”.

“TPR will be able to determine the impact of the act on company profits with the benefit of hindsight by referencing the subsequent published annual accounts,” she continued.

“The issue for corporates is that at the time of the act they will not be able to assess with certainty its impact - this means that a company will not be able to predict TPR’s response with confidence at the time of the event.

“While it's interesting to see the other options considered for ‘resources’, ultimately seeing the regulations without the further detail on the other new Contribution Notice (the insolvency one), and any accompanying TPR guidance, provides limited clarity for corporates in terms of what this may mean in practice for how they assess the impact of corporate activity on their scheme – and how they can manage the risk of being at the receiving end of a Contribution Notice.

“It is good to see some further detail about how TPR might judge whether an action (or failure to act) by a company has had a material impact on the resources of the employer. 

“The idea of using a simple profits test sounds straightforward at first sight but would raise many practical challenges and leaves unanswered how the rules would apply to charities and not-for-profit organisations. This could in turn lead to more requests for ‘clearance’ to TPR who will need the resources to deal with this.”

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