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Proposed approach to our new powers: consultation response

This is the response to our consultation on our approach to the new powers introduced by the Pension Schemes Act 2021 and their interaction with our existing powers.

Background

The Pension Schemes Act 2021 gave us a number of new powers to strengthen the regulatory framework for workplace pensions. Some of those changes were intended to enable us to gather information more efficiently about events or actions that could affect defined benefit schemes. Others introduced deterrents against behaviour that could put savers’ pensions at risk.

In late 2021 we consulted on three new policies:

  1. Overlapping powers (our approach where more than one power is potentially available to us in response to the same event)
  2. Monetary penalty powers – high fines
  3. Information gathering powers

This response report summarises the key points that stakeholders raised during that consultation and how we have addressed their comments.

Consultation responses

We received 14 responses from a mixture of advisory firms and industry associations.

Key issues raised

Overall, the respondents were broadly happy with the draft policies in terms of the guidance they provide and the clarity on the approach to our new financial penalty and information-gathering powers, and situations where we have a choice of powers. There were, however, a number of areas where respondents wanted more detail on our approach.

  • When we might use our financial penalty powers under section 58C and 58D of the Pensions Act 2004 instead of our criminal powers under sections 58A and 58B of the same Act.
  • Where we might pursue both regulatory and criminal proceedings for the same act(s), and our approach to the use of our information-gathering powers in that context.
  • The processes that affected parties can expect us to follow when investigating and using our new powers.
  • The rationale for some of the banding used in assessing the level of fines.
  • Further practical examples on circumstances where we may use these new powers and examples where we would not.

There were suggestions on how to improve the presentation of the policies, such as:

  • a clearer, more concise and comprehensive package of policies that cover not just these new powers but also how they sit alongside the use of our existing powers
  • the use of paragraph numbers and clearer use of subject headings/links, to make them easier to navigate

Comments received and how we have responded to them

We asked: Is the complete package of policies sufficiently clear about our overall approach to the new powers? If not is there any additional policy/guidance that you would find useful?

You said:

  1. Some of the respondents referred to the multiple policies that now exist in relation to our enforcement approach and commented that it would be helpful to have a clearer package of policies to cover all aspects of enforcement.
  2. Many of the respondents commented on the challenges in scrolling through large volumes of text and suggested that numbered paragraphs and a clearer layout on our website would help.
  3. Some respondents asked for further information for subjects of our enforcement action and what they should expect from us during the process.

Our response:

We have taken on board this feedback and have launched a draft enforcement policy for consultation, which describes what to expect from us if you are the subject of or an affected party to an enforcement investigation and/or subsequent proceedings. This policy also incorporates the finalised versions of the overlapping powers and information gathering policies as individual chapters. The enforcement policy will also include clear links to any other relevant policies depending on the stage of the investigation or enforcement action.

The monetary penalty policies, which covered the new power to issue high fines of up to £1million, will be published for consultation as two separate policies, one relating to the avoidance-type penalties and one relating to the information requirements penalties, with details on where we expect to take account of our existing monetary penalties policy.

We have also revised our prosecution policy to bring it up-to-date on our approach when prosecuting criminal offences, particularly in light of the new powers introduced in the Pension Schemes Act 2021.

We have tried to make the final policy as easy to use and accessible as possible for all users. As part of government accessibility guidelines, we have shifted from PDF to web-based format for much of what we publish. This approach makes it easier to break the policy into shorter pages and to improve how the information is linked together. You can still print the policy or save parts of it as a PDF using your web browser’s print options. We have also added paragraph numbers to the policy to make it easier to refer to specific sections.

Draft overlapping powers policy

We asked: Is the policy clear on the factors we will take into account when we have a choice of which power to use?

You said:

  1. Many of the respondents asked us to give more information on when we may seek a financial penalty rather than a criminal prosecution, for example in relation to the new avoidance-type criminal and financial penalty powers.
  2. Some respondents highlighted that some of the factors listed under specific types of power would also have general application to all powers, for example the impact of a person’s actions on the scheme would apply when assessing all circumstances where there is an overlap of powers. There were also some who asked for further clarity on which factors apply in which scenarios.
  3. Some sought more detail on the order of proceedings where we decide to pursue both our regulatory and criminal powers for the same set of circumstances.

Our response:

We have adopted a principles-based approach, as the choice of power we may pursue will very much depend on the individual facts of the case. However, we have included some further guidance in the overlapping powers chapter of the enforcement policy about when we expect to seek a financial penalty as opposed to pursuing a criminal prosecution. We have also expanded the examples to illustrate the types of factors that may lead us towards a particular power.

We have accepted the feedback about factors that have general application and have expanded the ‘general approach’ section to give an overview of those factors. We have also highlighted the particular factors that are likely to be relevant in specific situations in the individual parts of the ‘approach in different types of cases’ section.

We accept there was some lack of clarity over the order of proceedings and, while we can’t be prescriptive, we have amended the wording to better describe our approach.

We asked: Are the examples useful in illustrating what we will take into account when considering which power to use? Are there any other examples that you would find useful?

You said:

  1. The majority of respondents liked the examples we gave, but some asked:
    • for more clarity on exactly which power we would be likely to use for the different people in the scenarios, and
    • for more examples of different types of power

Our response:

As mentioned above, we have expanded the case examples both to include more persons and to be clearer on when we may choose one type of power over another. We have also included more examples in some of the individual sub-sections of the part of the overlapping powers chapter of the enforcement policy, ‘Approach in different types of cases’.

We asked: Do you have any other feedback about the overlapping powers policy?

You said:

  1. There were some helpful suggestions about how the policy could be set out in a different way to make it clearer and easier to follow.
  2. Some respondents asked for more clarity on how the various factors would be assessed – for example whether the fact that someone is a professional trustee would always be a factor which leans more towards criminal prosecution over regulatory action.
  3. Some highlighted missing powers in the table.
  4. There was a request to be clearer on when our criminal powers relating to avoidance activity could be pursued and when they would not.

Our response:

We have made changes to the layout and, as mentioned above, the updated content of this draft policy has now been included as a chapter in the wider enforcement policy. We have moved content that respondents found helpful and informative but of wider application than just instances where our powers overlap to other chapters of the enforcement policy. This applies to the summary on the different types of powers available to us, and the summary on the outcomes different types of power may secure, both of which have been incorporated into the ‘enforcement options’ chapter of the enforcement policy.

We believe this approach should provide greater clarity and make it easier to understand how our approach to overlapping powers fits into our overall approach to enforcement. It also makes it clearer where the reader can go for further relevant information, within both the enforcement policy and other related policies and procedures.

We have amended the wording and added further examples to clarify how we may apply the various factors in a particular case. However, we believe that a principles-based approach is the right one rather than seeking to be too specific, as the individual facts in particular cases need to be assessed and will rarely be the same.

The table of overlapping powers was not intended to be exhaustive but, given the feedback, we can see how this could be confusing. As a consequence, and as additional examples are now included, the table has been removed from the finalised chapter.

We have gone as far as we reasonably can to set out our policy approach to the new criminal powers relating to avoidance activity. For further information please refer to our previous consultation response.

Draft monetary penalty powers – high fines policy (avoidance and information requirements)

We asked: Is the policy clear on the approach we will use when calculating the fine amount?

You said:

  1. Overall, respondents felt that the policy is clear on how we will approach the calculation of these fines, however they wanted more detail on how we had reached our position.
  2. There was a suggestion that we should separate our approach to the failure to comply with the notifiable events regime and the other information requirement fines. There was also a request for more information about how we plan to approach the changes to the notifiable events regime, as well as comments that our policy should make clear the regime is not yet in force.
  3. There was a concern that the factors and the banding were too subjective.
  4. Some respondents felt we should be clearer about our approach to a target’s ability to pay, and whether a £100,000 minimum fine for avoidance activity would more be appropriate.

Our response:

We are encouraged that the majority of respondents were positive about our proposed approach.

It is important to note that these policies set out a framework for our approach, but that the flexibility remains to take account of the facts and circumstances of each case.

We have issued penalties under the existing monetary penalties policy for some time and have used that experience to inform the development of our approach to these higher value penalties. Our preferred approach is to undertake an individual assessment of all the relevant factors on a case-by-case basis. We do not think that a prescriptive approach to setting the fine amount would be appropriate.

Our policies in relation to the use of our financial penalty powers will be contained in three distinct policies:

The updated version of the monetary penalties policy, dealing with penalties under section 10 of the Pensions Act 1995, the Occupational Pension Schemes (Charges and Governance) Regulations 2015 and now also the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021.

The now finalised versions of the:

Each of the high fines policies now makes reference to sections of the existing monetary penalties policy which we will take into account when using these powers (but which are not repeated in order to avoid duplication), for example in relation to procedure and hardship.

The finalised version of the ‘high fines policy – information requirements’ is clearer about where we may adopt a different approach in relation to fines for failure to comply with the notifiable events regime, but we don’t think that this policy is the right place to cover our general approach to the changes to the notifiable events regime. Instead, we are updating the notifiable events code of practice and accompanying guidance, once the associated regulations have been published.

We asked: Have we identified the relevant factors for assessing culpability and harm as well as the aggravating and mitigation factors? If not, what other factors do you think might be relevant?

You said:

  1. The majority of respondents agreed that we had identified the relevant factors.
  2. There was a concern that the factors are too subjective and that there are more aggravating factors listed than mitigating ones. More mitigating factors were suggested, such as challenges in obtaining information or the fact that trustees are relying on advice.

Our response:

We are encouraged that respondents agree that factors identified in the consultation draft are relevant. We have made it clearer that those factors are not an exhaustive list and, as mentioned above, we do not think that a prescriptive approach to setting the fine amount would be appropriate. Our preferred approach is to undertake an individual assessment of all the relevant factors on a case-by-case basis.

In respect of the additional mitigating factors suggested by respondents, we think that they are more likely to represent grounds for a reasonable excuse – so we would expect to consider them earlier as part of our decision whether to pursue a financial penalty at all. However, if these factors are present but a person is still not considered to have a reasonable excuse, the policy makes clear that we will consider any such factors, if relevant, when assessing the amount of a penalty.

We asked: Do you have any other feedback about the high fines policy?

You said:

  1. Some respondents suggested that we should adopt a different approach to some of the fines, such as a starting point of £50,000 for avoidance-type penalties or ‘up to 20%’ for the non-payment of a contribution notice (CN).
  2. There was a request for greater clarity on the deadline for the discount for the non-payment of CN fine.
  3. There were a few inconsistencies identified between the avoidance and information requirement approaches.

Our response:

We have set out an approach which we consider to be reasonable based on our previous approach to issuing fines under the monetary penalties policy and the policy intent behind the introduction of these new powers. Ultimately, it is the Determinations Panel who will decide the level of fine it considers reasonable and appropriate, based on the individual facts and circumstances of each case. The Determinations Panel provide full reasons for their decisions, and we will review these decisions alongside the policy to ensure that it remains appropriate and update where necessary.

We have amended the section of the high fines policy – avoidance, to be clearer about the deadline for the discount. It will be available up until the start of the Determinations Panel hearing.

We have updated the policy to remove inconsistencies.

Draft information gathering powers policy

We asked: Is the policy clear on the options available to us and in which circumstances they may be used?

You said:

  1. Overall, respondents felt that the policy was clear on our options. What they thought was less clear were the circumstances in which particular options may be used.
  2. Respondents wanted more clarity on the use of the information once obtained, particularly in relation to its use in criminal or financial penalty proceedings.
  3. There were requests for further transparency on why information is requested and more consideration to be given on the timeframes allowed for compliance.
  4. There was some uncertainty in the language about voluntary requests and when information was, or was not, being ‘required’.

Our response:

As explained above, we are incorporating the finalised policy on our approach to information gathering within the investigations chapter in the new enforcement policy, which means our approach to information gathering won’t be included in the new consultation.

This will put the use of these investigation powers within their wider context and provide clarity on the types of circumstances in which we expect to use these powers, and their related sanctions for non-compliance. We are not, however, able to be definitive on which powers we will use in a particular case, as we will decide what is reasonable and proportionate based on all the circumstances.

We have provided more explanation within the policy about privilege against self-incrimination and the protections contained within section 310 of the Pensions Act 2004. We also give details about the information that our notices must contain when we decide to use our new interview power under section 72A of the Pensions Act 2004.

We have made it clear throughout the policy that we will only make a request to provide us with information, or an explanation, in writing or at interview, where appropriate and with reasonable time allowed for compliance or preparation. This includes assurance that we will consider any reasonable request for an extension of time.

We have amended this content to make it clearer when referring to voluntary requests, and have amended the policy to reflect this.

We asked: Is the policy clear on the consequences for non-compliance with our information gathering powers?

You said:

  1. The majority of respondents felt that the policy was clear. However, there were several requests for more clarity on what we may consider to be a ‘reasonable excuse’ for non-compliance.
  2. Respondents asked for more guidance on which option we may choose where we have a choice of power, for example a criminal prosecution or a financial penalty.
  3. For the escalating penalty for an individual, there were suggestions to include a cumulative example of how much a penalty may be after a certain period of time.

Our response:

Our policy needs to be sufficiently flexibility to address the particular circumstances of a case, so we cannot be prescriptive. We have, however, included some common factors that we would not typically expect to amount to a reasonable excuse, and that provide some additional clarity.

We have also updated the information gathering example included in the overlapping powers policy chapter of the enforcement policy to include additional characters to better illustrate which powers we would expect to use in certain circumstances. We also think that setting the information-gathering content in the ‘investigations’ chapter of the enforcement policy will provide better overall context and clarity on our approach, which options we may choose and how we reach our decisions.

We agree that an illustrative example for the escalating penalty for an individual would be helpful and so have included one. We have also added more information about the process and circumstances in which an escalating penalty notice may be imposed, following the issue of a fixed notice, and what information each notice must contain.

We asked: Do you have any other feedback about the information gathering policy?

You said:

  1. Respondents asked for greater clarity over when we might share information with other regulators or third parties.
  2. There was a request for more consideration to be given on the resource impact our information requests may have.

Our response:

We have updated the sub-section ‘Information obtained by TPR’ to include reference to the restricted information provisions in section 82 of the Pensions Act 2004, which provides the statutory framework on how we protect confidential information and the statutory basis on which we can use or share that information with third parties.

In terms of resource impact, our policy makes clear that we will make any requests or requirements to provide information where appropriate and reasonable for our investigation and proportionate to its scope. As set out above, we will allow a reasonable time for compliance and will take the resource impact on the recipient into account. However, gathering information is a necessary part of investigating the potential use of our enforcement powers in connection with our statutory functions.

Appendix: List of respondents to the consultation

  1. APL
  2. ACA
  3. Aon
  4. Buck Consultants
  5. Cardano
  6. Eversheds Sutherland
  7. ICAS
  8. PLSA
  9. PMI
  10. SPP
  11. USS
  12. Willis Towers Watson
  13. Institute for Family Business
  14. Hindle Group 
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