The Pension Schemes Act 2021 (the Act) has received Royal Assent on 11th February 2021. The Act may well have an effect on corporate transactions given that the Act extends the powers of the Pensions Regulator to include the creation of new criminal offences which could catch employers on corporate transactions. There may be an increase for example in applications to the Pensions Regulator for clearance on corporate and banking transactions that the Regulator will not issue a contribution notice/financial support direction up to the annuity buy-out deficit as a result of the transaction.
Pension Schemes Act 2021 – New Criminal Offences:
- Failure to comply with a contribution notice without a reasonable excuse. The Pensions Regulator has long had power to issue contribution notices/financial support directions on parties requiring them to contribute up to the annuity buyout deficit in a range of circumstances. Under the Act the Regulator can now in addition impose a civil fine up to £1 million for non-compliance but there can be an unlimited criminal fine (save for Scotland which is limited to the statutory maximum).
- Avoidance of the employer debt. Where a person was a party to an act of failure to act and intended to avoid the recovery by the trustees from an employer of a section 75 Pension Act 1995 as amended annuity buy-out debt or part thereof, there is a penalty of a fine and/or imprisonment for up to 7 years. The offence also covers compromising the pension scheme debt, reducing the amount which would otherwise be due and preventing such a debt becoming due. But there is a defence of reasonable excuse. How that is interpreted by the Pensions Regulator and the Courts remains to be seen. The defence can be used by the defendant where he either considered the extent to which the act or failure to act involved the avoidance of a debt, and concluded reasonably that the act would not have this effect, or took reasonable steps to remove or minimise the likelihood for the act or failure to act to have such an effect.
- Behaviour which puts at risk accrued pension benefits. If a person deliberately conducts himself so as to affect detrimentally pension scheme beneficiaries receiving accrued benefits which is material, there is again a penalty of up to 7 years imprisonment and/or a fine. It would need to be demonstrated the person knew or ought to have known the conduct would have that effect and there is no reasonable excuse. The reasonable excuse test can be used to argue the defendant duly considered whether the act or failure to act might have the effect of reducing the employer’s resources to fund the scheme and concluded reasonably the act or failure to act would not have this effect to took steps to remove the likelihood of the act or failure to act having such an effect.
In addition the Act imposes civil liability penalties up to £1 million where the Pensions Regulator:
- Receives misleading or false information whether knowingly or recklessly, and this also applies to information passed to the trustees
- Does not receive notification of a notifiable event (the Act introduces new notifiable events)
- Where there is failure to comply with a Declaration of Intent by sponsoring employers or other connected or associated giving details of the proposed transaction to the trustees.
There are fixed and escalating civil fines for non- compliance with additional powers for the Pensions Regulator to make information requests. The Act gives the Pensions Regulator extended information gathering powers to require attendance for interview and permit inspection of premises. There are also strengthened scheme funding powers such as improvement notices.
Guy Opperman, the Pension Minister confirmed on 11th January 2021 that the new criminal sanctions and information gathering exercises will most likely not come into force until Autumn 2021. There are other areas of the Pension Schemes Act 2021 which are not likely to come into force for several months until further regulations are passed. The Act also introduces a framework for pension dashboards to help people keep up to date with all their pension arrangements, as well as introducing legislative framework for collective defined contribution occupational pension schemes to introduce more flexibility into occupational pension schemes.
For more information please contact Abbiss Cadres’ Pensions Partner – Gary Cullen or get in touch.