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Decision to report

Code in force: 28 March 2024

  1. There are two key judgements required when deciding to report a breach of the law1:
    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 us?
Where the potential breach relates to a failure to pay contributions, please see Reporting payment failures for more information of failures we consider to be materially significant.

'Reasonable cause to believe'

  1. Having a reasonable cause to believe that a breach has occurred means more than merely having a suspicion that cannot be proved.
  2. 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 happened. However, it would not be appropriate to alert those implicated in potential serious offences involving dishonesty, such as theft or fraud. In such cases, due to the immediate risk to scheme assets, reporters should bypass the usual checks, making only those they deem necessary and not cause undue delay to the report being made to us.

Likely to be of 'material significance'

  1. By law, any breaches must be reported to us if they are likely to be of ‘material significance’ to us in carrying out any of our functions. Whether a breach is of ‘material significance’ depends on several factors.

The cause of the breach

  1. A breach is likely to be of material significance to us when it was caused by:
    1. dishonesty, negligence, or reckless behaviour
    2. poor governance, ineffective controls resulting in deficient administration, or slow or inappropriate decision-making practices
    3. incomplete or inaccurate advice
    4. a deliberate act or failure to act

The effect of the breach

  1. We consider a breach to be materially significant where the effects include any of the following:
    1. A significant proportion of members, or a significant proportion of members of a particular category of membership, are affected by the breach.
    2. The breach has a significant effect on the benefits being paid, to be paid, or being notified to members.
    3. The breach, or series of unrelated breaches, have a pattern of recurrence in relation to participating employers, certain members, or groups of members.
    4. Governing bodies that 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.
    5. Unmanaged conflicts of interest within the governing body, making it prejudiced in the way it carries out the role, ineffective governance and scheme administration, and/or breaches of legal requirements.
    6. Systems of governance (where applicable) and/or internal controls are not established or operated. This leads to schemes not being run in line with their governing documents and other legal requirements.
    7. 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.
    8. Accurate information about benefits and scheme administration is not being provided to scheme members and others meaning members are unable to effectively plan or make decisions about their retirement.
    9. Records are not being maintained. This results in member benefits being calculated incorrectly and/or not being paid to the right person at the right time.
    10. Governing bodies or anyone associated with the scheme misappropriate scheme assets or are likely to do so.
    11. Trustees of defined benefit schemes not complying with requirements of the Pension Protection Fund during an assessment period.

Reaction to the breach

  1. 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.
  2. A breach is likely to be of concern and material significance to us if a breach has been identified that:
    1. does not receive prompt and effective action to remedy the breach and identify and tackle its cause to minimise risk of recurrence
    2. is not being given the right priority by the governing body or relevant service providers
    3. has not been communicated to affected scheme members where it would have been appropriate to do so
    4. forms part of a series of breaches indicating poor governance
    5. it was caused by dishonesty, even when action has been taken to resolve the matter quickly and effectively

The wider implications of the breach

  1. These 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:
    1. 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)
    2. other schemes may be affected, for example schemes administered by the same organisation where a system failure has caused the breach
  2. 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 occur in a poorly funded and/or poorly administered scheme will be more significant to us than if they occurred in a well-funded, well-administered scheme.
  3. Reporters should consider other reported and unreported breaches that they are aware of. However, reporters should use historical information with care, particularly where changes have been made to address breaches already identified.
  4. 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 follow in the administration and management of the scheme,
  • Systems and arrangements for monitoring that administration and management, and
  • Arrangements and procedures to follow 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 the law.

1Section 70 of the Pensions Act 2004 and Article 65 of the Pensions (Northern Ireland) Order 2005