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Decision to report

Important

Early draft of the code of practice

This code is not in force yet. It is an early version for the new code of practice consultation.

To give us feedback on issues such as the design, usability and navigation of this code, email us at webfeedback@tpr.gov.uk.

You can also read more information about the consultation.

Published: 17 March 2021

There are two key judgements required to make the decision to report a breach of the law:DC1

  1. Is there reasonable cause to believe there has been a breach of the law?
  2. Is the breach likely to be of material significance to TPR?

Reasonable cause to believe

Having a reasonable cause to believe that a breach has occurred means more than merely having a suspicion that cannot be proved.

Where a breach is suspected, reporters should carry out checks to establish whether a breach has occurred.

Where the reporter does not know the facts or events around the suspected breach, it will usually be appropriate to check with members of the governing body or with others who are able to confirm what has happened. However, it would not be appropriate to alert those implicated in potential serious offences, such as theft or fraud. In such cases, it may be appropriate to bypass the usual checks with the governing body.

Likely to be of ‘material significance’

The legal requirement is that breaches likely to be of ‘material significance’ to us in carrying out any of our functions must be reported. Whether a breach is of ‘material significance’ depends on a number of factors:

1. The cause of the breach

A breach is likely to be of material significance to us where it was caused by:

  • dishonesty, negligence or reckless behaviour
  • poor governance, ineffective controls resulting in deficient administration, or slow or inappropriate decision-making practices
  • incomplete or inaccurate advice
  • a deliberate act or failure to act

2. The effect of the breach

We consider a breach to be significant where the effects are as follows:

  • A significant proportion of members, or a significant proportion of members of a particular category of membership, are affected by the breach.
  • The breach has a significant effect on the benefits being paid, to be paid, or being advised to members.
  • The breach - or series of unrelated breaches - have a pattern of recurrence in relation to participating employers, certain members or groups of members.
  • Governing bodies do not have the appropriate degree of knowledge and understanding, preventing them from fulfilling their roles and resulting in the scheme not being properly governed and administered and/or breaching other legal requirements.
  • There are unmanaged conflict of interests within the governing body, resulting in: it being prejudiced in the way it carries out the role; ineffective governance and administration of the scheme, and/or breaches of legal requirements.
  • Systems of governance (where applicable) and/or internal controls are not established or operated, leading to schemes not being run in accordance with their governing documents and other legal requirements.
  • Risks are not properly identified and managed and/or the right money is not being paid to or by the scheme at the right time.
  • Accurate information about benefits and scheme administration is not being provided to scheme members and others, so members are unable to effectively plan or make decisions about their retirement.
  • Appropriate records, including those for the dashboard, are not being maintained, resulting in member benefits being calculated incorrectly and/or not being paid to the right person at the right time.
  • Governing bodies or anyone associated with the scheme misappropriate scheme assets or are likely to do so.
  • Trustees of defined benefit schemes do not comply with requirements of the Pension Protection Fund during an assessment period.

3. Reaction to the breach

We will not normally consider a breach to be materially significant if prompt and effective action is taken to investigate and correct the breach and its causes and, where appropriate, all affected scheme members have been notified.

A breach is likely to be of concern and material significance to us where a breach has been identified that:

  • does not receive prompt and effective action to remedy the breach and identify and tackle its cause to minimise risk of recurrence
  • is not being given appropriate priority by the governing body or relevant service providers
  • has not been communicated to affected scheme members where it would have been appropriate to do so
  • where it forms part of a series of breaches indicating poor governance

4. The wider implications of the breach

The wider implications of a breach should be considered when assessing whether it is likely to be materially significant to us. For example, a breach is likely to be of material significance where:

  • the fact that the breach has occurred makes it appear more likely that other breaches will emerge in the future (the reason could be that the governing body lacks the appropriate knowledge and understanding to fulfil their responsibilities)
  • other schemes may be affected, for example schemes administered by the same organisation where a system failure has caused the breach

Those reporting a breach should consider general risk factors such as the level of funding (in a defined benefit scheme) or how well-run the scheme appears to be. Some breaches that arise in a poorly funded and/or poorly administered scheme will be more significant to us than if they arose in a well-funded, well-administered scheme.

Reporters should consider other reported and unreported breaches they are aware of. However, reporters should use historical information with care, particularly where changes have been made to address previously identified breaches.

We will not usually regard a breach arising from an isolated incident as materially significant, for example breaches resulting from teething problems with a new system or from an unpredictable combination of circumstances. However, in such circumstances reporters should consider other aspects of the breach such as the severity of the effect it has had that may make it materially significant.

Glossary and legal references

Internal controls

  • Arrangements and procedures to be followed in the administration and management of the scheme
  • Systems and arrangements for monitoring that administration and management, and
  • Arrangements and procedures to be followed for the safe custody and security of the assets of the scheme (Section 249A of the Pensions Act 2004)

Reporter

Any person who has a duty to report a breach of law or notifiable event

DC1Section 70 of the Pensions Act 2004 & Article 65 of the Pensions (Northern Ireland) Order 2005