Effective risk management systems and staff training are "paramount" in defined benefit (DB) pension schemes not falling foul of new criminal offences outlined in the Pension Schemes Act (PSA), according to Squire Patton Boggs (SPB).

In a blog blog, the law firm warned trustees, sponsoring employers and advisers that ignorance of the law was unlikely to be a reasonable excuse and urged them to check the extent to which personnel are indemnified or covered through insurance policies.

The legislation will bring in two new offences in relation to DB schemes: avoidance of an employer debt, and conduct risking accrued scheme benefits, with both of these carrying the risk of a criminal penalty of an unlimited fine and up to seven years in prison.

Blog author and SPB partner, pensions, Catherine McKenna, continued: “The new offences have a wide scope and extend to anyone involved in the operation of a DB scheme (eg from a trustee, corporate or advisory perspective) who does not have a reasonable excuse for their actions."

The pensions industry would have had “far more certainty” about whether new criminal offences could be applied retrospectively if the PSA had been more explicit, she added.

McKenna acknowledged that The Pensions Regulator (TPR) had previously said it would not use its new powers retrospectively, but indicated that increased clarity within the legislation would have been appreciated.

Pensions Minister, Guy Opperman, has also previously confirmed that TPR's new powers would not be applied retrospectively.

Schemes and sponsors were urged put the PSA on their agenda to ensure that key risks are identified and actions agreed and implemented.

In this vein, McKenna was keen to impress the importance of key personnel being informed on the new grounds for TPR to issue contribution notices to underfunded DB schemes.

She also urged schemes without information sharing protocols in place to put them in place due to changes in terms of which ‘notifiable events’ must be communicated to TPR.

“The act will impose new duties on trustees of DB schemes to have in place a funding and investment strategy which must be kept under review," McKenna continued.

"Employer agreement will be required. The strategy must specify the funding level which the trustees intend the scheme to have achieved and detail the investments the trustees intend the scheme to hold at specific dates.

“We await secondary legislation, but TPR has of course been proactive in consulting on its revised funding code of practice, engaging with the industry on the particulars of how it expects schemes to comply in practice.”

The blog also acknowledged the act’s inclusion of collective money purchase schemes, which was described as “largely to enable Royal Mail to fulfil its commitment to provide this form of pension provision for its employees”, and noted the inclusion of measures to improve the gathering of data for the upcoming pensions dashboards.

Share Story: