Guest comment: At long last: increased criminal sanctions for those who place employee pension schemes at risk

The focus of Parliamentarians is now on the first December general election in most people’s living memory, one that is sure to be dominated by Brexit.

But when we have a new government, it will have to consider whether to pursue an important change in pension law enforcement.

The Queen’s Speech last month quietly introduced a piece of legislation which could have very significant ramifications for company directors and trustees of employer pension schemes. That is, in the event that a new government finds the time to bring these long overdue measures into law.

The Pension Schemes Bill (“PSB 2019”), introduced by the DWP into the House of Lords, introduces a wide range of new obligations designed to strengthen the pensions regulation landscape.

Much of the Bill revolves around the technical elements of collective schemes, but it also introduces increased enforcement and financial sanctioning powers for The Pensions Regulator (TPR).

This includes new criminal offences targeting failures by company directors to properly protect their employees’ pension funds.

The existing legislative framework already contains a series of criminal offences which TPR is empowered to prosecute.

These offences fall into four broad categories: (a) specific technical breaches of pensions regulations such as exceeding permitted levels of investment ; (b) fraudulent conduct, such as the evasion of direct payment arrangements ; (c) acting in a regulated capacity whilst unauthorised; and (d) failures in complying with the provision of information to TPR during the course of an investigation.
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In respect of the final category, it is an offence under section 80(1) Pensions Act 2004 to provide false or misleading information to TPR without reasonable excuse, pursuant to section 72 of the same Act.

A section 72 notice forces company directors to provide any information or documents relevant to an investigation, in a similar manner to the exercise of powers under s.172 Financial Services and Markets Act 2000 by the Financial Conduct Authority.
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This failure can either be reckless or intentional, and it was recently successfully deployed against Dominic Chappell in connection with the TPR investigation into the disastrous purchase of BHS from Sir Philip Green in 2015.

Despite having no previous retail experience, Mr Chappell was able to purchase the chain for just £1, with administrators being forced to take over in April 2016.

In September 2018, Mr Chappell lost his appeal against conviction and sentence, which saw him ordered to pay a £50,000 fine and £37,000 in costs.

In dismissing his case, the judge declared that Mr Chappell had been “evasive about his business dealings” throughout, and his reasoning for failing to provide adequate information to TPR had been “entirely unbelievable.”

Separate criminal proceedings against Mr Chappell for alleged fraudulent tax evasion in connection with the same events are ongoing at Southwark Crown Court.

Given that the estimated pensions deficit in the BHS case was £571m, the penalties levied upon Mr Chappell, whilst clearly significant for him personally, raised understandable questions about the sufficiency of the existing enforcement framework.

It prompted the DWP to reinvigorate its efforts to increase the TPR’s substantive (as opposed to consequential) criminal and regulatory enforcement clout to protect employees from losing their life savings at the hands of unscrupulous bosses, and to recover sufficient monies in the event of loss.

The consultation process commenced in March 2018, with the response being published in February 2019.

In respect of new criminal sanctions, the offences taken forward into the Bill were threefold: Failure to comply with a contribution notice – punishable with an unlimited fine; (s.06 PSB 2019); avoidance of employer debt – punishable by an unlimited fine and/or up to seven years imprisonment (s.107 PSB 2019) and conduct which risks accrued scheme benefits – punishable by an unlimited fine and/or up to seven years imprisonment (s.107 PSB 2019).

In addition to these new criminal offences, the proposed Bill also significantly increases TPR’s powers to compel individuals to provide information (now to include interviews as well as the furnishing of documents), and civil penalties of up to £1m as an alternative to prosecution of the new offences or where an individual provides false or misleading information during an investigation.

A series of new procedural and reporting obligations in respect of the administration of pension schemes would also be included within the existing “failure to provide information” offences.

This substantially increases the burden on employers, trustees and directors, and the potential consequences of falling short in their duties to the regulator are significant.

If the Bill becomes law in early 2020, anyone with responsibility for employer pension management should be acutely aware of their individual obligations to TPS, particularly in a retail environment where large store groups face lower levels of profits.

Chains such as John Lewis, Dixons Carphone, Mothercare, Carpetright and the Arcadia Group are all thought to have existing shortfalls in their pension schemes, and the UK FTSE 350 pension deficit as at the end of September 2019 is estimated to be at a two year high of £67bn.

In light of the catastrophic personal consequences associated with the loss of pensions, and the public interest in protecting against fraud and mis-management, it should be expected that the regulator will be keen to deploy these new criminal and administrative enforcement powers as soon as Parliament has the time to ensure that they become law.

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