The Pensions Regulator

Reporting breachesComplying with the duty to report breaches of the law

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Examples of red breach situations [with reasons]

• Matters indicating possible dishonesty or misuse of assets or contributions, such as:
  • authorisation of loans from the scheme to an associate of the trustees or the employer, however short-term. [Because the cause is likely to be either a deliberate decision by trustees to flout the law or, at best, a failure to appreciate that such a loan is illegal and its effect is a weakening of member security];
  • a custodian or fund manager receives an instruction to transfer documents of title or sale proceeds to a destination that does not appear to be another custodian, fund manager or approved pension scheme without a satisfactory explanation. [Because the potential effect is to remove assets from the scheme and the cause may be dishonesty]; or
  • a persistent or significant departure from the scheme's statement of investment principles, for example, so as to allow self-investment in the employer or to allow a significant departure from agreed asset class ranges. [Because it may have a significant effect on the security of members' benefits (in a defined-benefit scheme) or on members' expectations (in a money-purchase scheme)].
• Breaches carrying a criminal penalty, such as:
  • employer-related investment breaches, particularly making illegal loans [because the effect is to weaken security for members' benefits]; or
  • a trustee acting whilst disqualified. [Because the effect is that a person not considered fit and proper is making decisions on the scheme].
• Failure of the trustees of a defined-benefit scheme to review their investment policy in the light of significant changes to the circumstances of their scheme, for example, when a scheme no longer has any active members or the membership profile changes significantly following a bulk transfer of members in or out of the scheme, or the scheme begins winding up. [Because the cause may be a lack of understanding on behalf of trustees of the importance of investment policy and the effect may be a weakening of the security for members' benefits.]
• trustees prepare or revise a statement of investment principles without consulting the employer. [Because the effect is that the employer, who is the ultimate sponsor of the scheme, is being denied the right to make his views on such a vital subject as investment strategy known to the trustees and the cause is likely to be at best trustee ignorance of this important requirement and at worst a deliberate breach.]
• Persistent failure to obtain auditors' statements on contributions or audited accounts by the seven month legal deadline, for example, as a result of poorly maintained records or inadequate administration systems. [The cause may be a failure of the trustees to take responsibility for the administration of the scheme and the wider implications are that further administrative breaches are likely in the future and members may be receiving incorrect benefits.]
• Trustees taking decisions on matters which require professional advice, for example regarding scheme investments or augmentation of pensions, without obtaining it from the appropriate, properly appointed adviser [The cause may be a lack of understanding on the part of trustees of their responsibilities and the effect may be that inappropriate decisions are made.].
• Widespread and/or persistent administrative failures stemming from poor record keeping or inadequate controls, for example:
  • widespread and persistent misallocation of member contributions to member accounts in a defined-contribution scheme or additional voluntary contribution arrangement, where the trustees and/or administrator are aware of the misallocation and have taken no action to resolve the matter or have failed to resolve it promptly. [Because the cause may be poor governance and controls, the effect is that many members' benefits are affected and the trustees and administrators are not taking the action needed];
  • widespread administrative delays and errors in an occupational scheme, including frequent cases of incorrect benefits being quoted or paid, and late or non receipt of information such as transfer value quotations and benefit statements where the problem has been known for some years but still persists. [Because the cause seems likely to be inadequate governance, in particular, a failure to impose service standards on the administrator and the effect is that members are experiencing delays and are, in some cases, not getting correct benefits and the trustees' reaction is inadequate. In the case of a third party administrator, there may be implications for their other clients];
• Failure by the trustees to make an initial or subsequent report on the progress of the winding-up of the scheme within the legislative timescales or shortly thereafter. [Because the effect is that the trustees are not fulfilling an important regulatory responsibility to keep the Pensions Regulator informed and the cause may be that the trustees lack the appropriate knowledge and understanding to carry out their duties].
• Failure by the employer or the trustees in respect of a scheme covered by the Pension Protection Fund to inform the Pensions Regulator when a notifiable event occurs. [The effect is that an important statutory early warning of a potential funding problem is not given to the Pensions Regulator.]

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