The Pensions Regulator

Reporting breachesComplying with the duty to report breaches of the law

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Code paragraph 31

(on having reasonable cause to believe that a breach has occurred)

Consider the following situation:

A member contacts the scheme administrator with a suspicion of wrong-doing after reading the latest trustee report and accounts. The administrator is thus obliged to consider whether this ought to be reported.

The member has noted that the scheme assets have fallen by some 1 million over the last year and points out that this is the cost of new machinery just installed by the employer. The member alleges that the employer must have been wrongly using pension scheme money for this purpose.

The scheme administrator checks the accounts and it is clear that the real reason for the apparent loss in value of scheme assets is the behaviour of the Stock Market over the period. The administrator is able to reassure the member that nothing untoward has happened with regard to scheme assets.

The administrator concludes that there is not a reasonable cause to believe that a breach has occurred.

View code paragraph 31.

Code paragraph 32

(on checking the facts around a suspected breach)

An example around checking facts:

During the course of preparing the supporting papers in advance of the statutory audit, the scheme administrator discovers that for some months funds appear to have been transferred overseas in a process not usually used by the scheme. The individual amounts are not large, but over time they constitute a significant sum. The destination for those payments is a Caribbean island often used as a tax haven and the administrator feels that further investigation is required.

The administrator checks with the trustees:

• whether they have authorised any payments overseas;
• if a copy of the mandate is available; and
• what reasons lie behind the unusual procedure adopted.

In this case the trustees had decided to alter the method by which pensioners living on this particular island were paid because high bank charges were falling on the members concerned and eroding their already small pensions. The trustees had neglected to notify the administrator and had dealt with the bank directly following communication from a former member-nominated trustee who had retired to the island concerned.

View code paragraph 32.

Code paragraph 33

(on clarifying the law around a suspected breach)

Reporters should clarify their understanding of the law to the extent necessary to form a view as to whether there has actually been a breach.

Advisers and service providers are expected to be familiar with the detail of legislation around their specific functions. For example, scheme administrators should know the disclosure requirements, scheme auditors should know the law around auditing scheme accounts and scheme actuaries should know the law relating to scheme funding.

Where a breach relates to an aspect of the law not normally the province of the reporter concerned, it would be reasonable to first approach the relevant scheme adviser or service provider for confirmation if the question at issue seems straightforward.

If, after initial investigation, the question is clearly more complex (on whether an investment is employer-related, for example), reporters are expected to take their own legal advice. However, reporters are not expected to incur significant legal costs and if an initial legal opinion indicates that a breach might have occurred, the reporter is expected to move to the next stage and make the decision on material significance, assuming reasonable cause to believe the breach has occurred has been established.

For example, consider a small insured scheme where the employer is sole trustee. The employer/trustee reads that the trustees of most schemes must obtain audited accounts for the scheme or an auditor's statement every year. They have never obtained audited accounts nor an auditor's statement for their scheme. We would expect them to ask their IFA (who may in turn ask the insurer) or the insurer itself to clarify the legal requirement. The insurer clarifies that as the scheme is classed as a 'relevant earmarked scheme' the trustees do not have to obtain audited accounts nor an auditor's statement.

View code paragraph 33.

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