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Compliance and enforcement quarterly bulletin October to December 2019

This quarterly update provides information about our cases and the powers we have used. It is designed to help employers, their advisers, trustees and administrators understand the type of compliance and enforcement interventions we undertake. Our approach is based on preventing problems developing in the first place by being clear about our expectations, and we have a range of educational materials for all members of our regulated community. These include online resources for employers and their advisers to help them through automatic enrolment (AE), the Trustee toolkit, guidance on scams, and information on other areas including funding and investment, scheme governance and record-keeping.

Compliance

How regulatory initiatives help ensure savers are in well-governed schemes

In the previous two issues of the bulletin we’ve focused on two of the three areas of supervision – relationship and event. In this edition we look at regulatory initiatives, which affect the largest number of schemes.

Regulatory initiatives involve us communicating directly with anything from tens to hundreds of schemes, regardless of size, zeroing in on areas of risk we’ve identified through our intelligence teams, data analysis and learnings from schemes in relationship or event supervision and thematic reviews.

We contact schemes in writing, making clear what our expectations are, whether it is to comply with the law or raise standards through influencing trustee behaviour. They have a reasonable amount of time to take action, and we provide guidance and support to help them collate the information we need. If we don’t see any changes, we are prepared to take whatever enforcement action is needed.

We have already launched four regulatory initiatives, covering the following areas:

  • Fair treatment (pension scheme contributions versus dividends)
  • Lengthy recovery plans
  • Investment governance
  • Record-keeping

Although some of the initiatives are still ongoing, we have seen very encouraging results from them all so far, with a high proportion of schemes responding positively to our initial communications. Feedback we have received from trustees who have already taken part in a regulatory initiative indicated that it was helpful for them to know what The Pensions Regulator (TPR) is focused on, and over half of the lay and professional trustees we asked reported that our letter was proving useful when negotiating increases to scheme contributions with the employer. We have also discovered that one scheme has appointed an independent trustee as a result of receiving one of our questionnaires.

Ultimately, we want all savers to be in schemes that are well governed and well run and our regulatory initiatives target schemes not meeting our high standards – whatever their type and whatever their size.

Case study

This pension scheme received our initial questionnaire as part of the ‘fair treatment’ regulatory initiative. They had been selected for this initiative as our intelligence indicated that their sponsoring employer was paying out disproportionately high dividends at the expense of deficit repair contributions to the scheme. As a result of our communications regarding fair treatment, the trustees and employer agreed an additional £15 million lump sum (which has already been paid into the scheme), front-end loading their recovery plan.

Message to trustees

We are clear in our expectations, give reasonable deadlines and provide plenty of guidance so there’s no excuse not to comply with our regulatory initiatives and make improvements where we indicate they are necessary. Your scheme members will benefit from your involvement, so don’t delay your response.

Enforcement

TPR tough on mismanagement of scheme funds

We want to make sure that only fully competent, engaged trustees are in charge of pension schemes, and to achieve this we come down hard on those who wilfully mismanage scheme funds and work to raise standards among those who are willing to improve.

When we are made aware of potential pensions scams, our main concern is to protect the schemes involved, prevent further members transferring in, and prevent further action being taken which puts member benefits at risk. Our first steps are often to appoint an independent trustee (IT) to the scheme and suspend the former trustees from acting as trustees on other schemes pending the outcome of our wider investigation.

Scams can take time to investigate, which means that we sometimes need to ask the Determinations Panel to extend the period of suspension for some individuals – we did this in the case of 11 individuals in the last quarter. This represents a significant increase in the use of this power and reflects our increased scrutiny of potential scam schemes.

Last week we announced new plans to tackle poor scheme governance, which include updating the Trustee Knowledge and Understanding code of practice and reviewing the Trustee toolkit to see where we can make improvements. We will look to carry out a regulatory initiative to check levels of trustee knowledge and understanding, once these standards are in place. Those who fail to meet appropriate levels of knowledge and understanding will be expected to improve or bring in an independent trustee themselves, to ensure that the scheme is run well.

Case study

We received a whistleblower report suggesting that the corporate trustee of this scheme was misusing the scheme’s funds. On investigation, we discovered evidence of multiple investment breaches, so we appointed an independent trustee. With their help, we identified numerous other concerns related to the scheme investments, the management of the scheme, and scheme expenses. We also found evidence of scheme funds being paid into the bank account of one of the trustee directors, via a business run by his wife. We then applied to the Determinations Panel to prohibit both directors for acting as trustees for any pension scheme in the future (which was granted), and one of them was subsequently charged with and has pleaded guilty to fraud.

Message to trustees

We are committed to ensuring savers are in well-governed schemes and will use our powers where trustees fail to respond to our standard-raising initiatives or wilfully defraud scheme members of their pension savings.

Selected powers used for frontline regulation

Power  Description  Number in period  Number to Dec 2019 
Trustee appointments The power to appoint trustees to schemes (a) to secure that the trustees as a whole have, or exercise, the necessary knowledge and skill for the proper administration of the scheme, (b) to secure the proper use or application of the assets of the scheme, and/or (c) otherwise to protect the interests of the generality of the members of the scheme. 0 55
The power to appoint trustees to schemes to secure that the number of trustees is sufficient for the proper administration of the scheme under section 7(3)(b) of the Pensions Act 1995. 96 3,005
Power to vest or transfer property as a consequence of appointing or removing a trustee under section 9 of the Pensions Act 1995. 0 28
Trustee suspensions The power to suspend a trustee either (a) whilst we are considering making a prohibition order against them, or (b) if proceedings have been issued against them for an offence involving dishonesty or deception, or (c) pending consideration being given to the institution of proceedings for an offence involving dishonesty or deception.
17
Power to extend the period of suspension
11 14
Trustee prohibitions Power to make a prohibition order under section 3 of the Pensions Act 1995.  19
Special Procedure Where TPR considers that there would be an immediate risk to members’ interests or scheme assets if a warning notice were to be issued. 0 31 
Mandatory penalty notice The Occupational Pension Schemes (Charges and Governance) Regulations 2015 require us to issue a mandatory penalty where no chair’s statement has been prepared or we are of the opinion that the statement does not comply with the requirements prescribed for a chair’s statement in the Occupational Pension Schemes (Scheme Administration) Regulations 1996. 17 619
Scheme return enforcement Trustees have a legal obligation to give us information about their pension scheme by completing a scheme return when required, and an ongoing duty to ensure our records are maintained with up-to-date registrable information. A financial penalty under section 10 of the Pensions Act 1995 may be imposed for this failing. 8 235
Audited accounts enforcement Trustees or scheme managers of most schemes are legally required to obtain audited accounts annually, within seven months of the scheme year end. Failure to do so may result in a financial penalty. 0 4
Information gathering Our formal information gathering powers under section 72 of the Pensions Act 2004. 39 742

 

Power  Description  Number in period  Number to Sep 2019 
Regulatory intervention reports Section 89 of the Pensions Act 2004 gives us the power to publish information on cases where we have exercised or considered exercising our powers. 61
Clearance
A statement that we will not use our anti-avoidance powers to issue either contribution notices or financial support directions in relation to a defined benefit occupational pension scheme.  0 57
Inspection and warrants
Statutory inspection powers under Section 73 to 78 of the Pensions Act 2004. 0 6
Production order A High Court Order under Section 345 of the Proceeds of Crime Act 2002 requiring the production of specified material.  3 31
Provision of information by interested party. Section18(A) Proceeds of Crime Act 2002. 4 4
Restitution order  A High Court Order under Section 16 of the Pensions Act 2004 requiring a person to put right a misuse or misappropriation of pension scheme assets in which they were involved.  0 4
Restraint order A High Court Order under Section 41(1) of the Proceeds of Crime Act 2002 requiring the restraint of assets.  0 2
Criminal  Fraud by Abuse of Position under Section 4 of the Fraud Act 2006.  5
Restriction on Employer Related Investments under Section 40 of the Pensions Act 1995. 0 2
Improvement/third party notice  Notices containing directions for a person to take steps to enable compliance with pensions legislation or remedy any non-compliance.  0 17
Regulated apportionment arrangement The application, subject to conditions, to separate a scheme from its employer. It must be approved by us and the PPF must confirm that they do not object to the RAA. 0
Master trusts  Master Trusts authorised under section 13 of the Pension Schemes Act 2017. 5 38
Other Various other powers  9 147
Total 193 5,150

Review of statutory notices for frontline regulation

If a trustee or other recipient disagrees with the issuing of a Statutory Notice issued under the 2015 Regulations – for example for failing to prepare a chair’s statement or exceeding the charge cap – they can apply for a ‘review’ of that decision. We set out the right of review in all notices, as well as how to apply for a review. An application for a review must be made within 28 days from when the notice was first issued.

We appoint a review officer, who is someone not previously involved with the case, to carry out the review. We will usually complete the review within 10 working days of the written notification that the application has been accepted and that a review will be carried out. If this is not possible, we will contact the applicant(s) and let them know when they can expect us to make a decision.

Reviews  Number in period  Number to Dec 2019 
Requested 1 143
Completed 2 138

 

Outcome of reviews  Number in period  Number to Dec 2019 
Confirmed 30
Revoked, substituted or varied 2 100

Automatic enrolment

Why advisers aren’t off the hook for inaccurate auto-enrolment claims

Last month we successfully prosecuted a third accountant for deliberately lying about completing automatic enrolment duties on behalf of an employer, and he incurred fines and costs of £5,000 for the offence (see case study below). Although the employer is legally responsible for completing their duties, knowingly providing false information to us is a crime by whoever completes the declaration, and advisers who lie to us will be found out.

Having third party advisers who are competent and knowledgeable about all aspects of AE is vitally important, given that 30% of new employers are seeking external help with some or all of their AE duties as part of their day to day financial administration. To make sure all advisers are up to speed with the basics, we’re running a webinar just for them on 30 March, which they can sign up to here. With the evolution of automatic enrolment, advisers may have clients who are going through re-enrolment as well as new employers who have never been through the ‘staged’ approach, so it’s a good opportunity for them to brush up on their knowledge and avoid compliance issues down the line.

Case study

This Cambridge-based former accountant was working for an employer with 17 members of staff. The company came to our attention as part of our compliance validation checks after it failed to declare compliance on time, and received a fixed penalty notice (FPN), and subsequently an escalating penalty notice (EPN). The EPN had accrued to £4,500 when the employer declared compliance, claiming that 10 employees had been automatically enrolled and two were not eligible.

We discovered the declaration was false when the pension scheme contacted us to say that the employer’s account had been cancelled, and that no employees had been enrolled. After serving the employer with an inspection notice we discovered that there were indeed eligible staff. We also discovered that the accountant had been struck off the Chartered Institute for Management Accountants’ register in 2018.

The employer claimed that the accountant had reassured him that AE was in hand, but when we challenged this he enrolled the relevant staff and backdated contributions. The accountant admitted to falsifying the information on the declaration, claiming that he had misunderstood the questions on the declaration of compliance, was overwhelmed with work and had intended to re-submit the correct information when he had more time. We prosecuted the accountant for giving us false and misleading information – he pleaded guilty in court and was penalised nearly £5,000.

Message to advisers

Whether you are too busy or simply don’t understand what you need to do, don’t give us false information. We have all the information you need on our website, so ignorance is no excuse. We are still carrying out these data-led inspections throughout the country, so we’ll find out if you’ve lied to us and you may end up being prosecuted.

Cases closed 

Automatic enrolment cases closed in the period 
Cases closed in this quarter 17,864
Cases closed to date[1] 337,584

Selected powers used in the period

Power  Number in period  Number to Dec 19 
Information notice 339 1,472
Inspection 60 1,828
Warrant 4
Compliance Notice 9,981 179,801
Unpaid Contributions Notice 10,842 55,266
Fixed Penalty Notice 11,490 105,556
Escalating Penalty Notice 5,218 32,157
Total 37,990 376,084

Review of statutory notices for automatic enrolment

A review is where an employer who is the recipient of a statutory notice (such as a Compliance Notice, Fixed Penalty Notice or Escalating Penalty Notice) disagrees with our decision and requests a review.

Confirmed reviews are where we have carried out a review and decided that the statutory notice was issued correctly and appropriately, and will continue to be applied to the employer. In some cases, we revoke the statutory notice following the review. Where a notice is substituted, this may mean that a different breach has been uncovered and a different statutory power is used instead.

Reviews[2]  Number in period  Number to Dec 19 
Requested 3,339 43,581
Completed 2,244 30,240

 

Outcome of reviews  Number in period  Number to Dec 19 
Confirmed  548 8,682
Revoked, substituted or varied 1,696 21,558 

Tribunals for automatic enrolment

Employers who receive a penalty notice and disagree with our decision to issue it must first ask us for a review. If they disagree with the outcome of that review they can then appeal the decision to the Tribunal Service. Employers have 28 days after the review decision is issued in which to appeal.

Tribunals  Number in period  Number to Dec 19 
Requested  107 1,740
Defended 41 1,042
Not defended
56 687

 

Outcome of defended tribunals  Number in period  Number to Sep 19 
Confirmed[3] 78  938
Revoked, substituted or varied
5 58
Total 83 996

Ongoing tribunals where the decision has yet to be made on how to respond: 10

Defended tribunals still ongoing at the end of December 2019: 46

Online list of employer and trustee fines

We publish details of those who have received penalties either for:

  • not completing a chair’s statement on time
  • not completing a scheme return
  • remaining non-compliant after paying an escalating penalty notice (EPN)
  • an unpaid EPN leading to a county court judgement (CCJ)

We publish enough information to identify:

  • the name and area of those who have been fined
  • the amount they need to pay to us

Footnotes

  • [1] We define ‘to date’ as the period commencing from the outset of our compliance and enforcement activity for automatic enrolment (July 2012), and continuing all the way to the end of this reporting period (ie 31 December 2019). We occasionally identify a small number of cases which have been incorrectly marked as relating to automatic enrolment. When this occurs, an adjustment to the numbers from the previous quarter will have been made.
  • [2] Note that the above numbers represent the number of statutory notices that have been subject to a review request from an employer. The reviews completed in the period may not have been requested in the period. The numbers are subject to change over time as powers issued in a previous period are subsequently replaced as part of ongoing enforcement activity.
  • [3] Confirmed includes Struck out, Dismissed, plus Withdrawn.