Understanding The New Criminal Offences Under the Pension Schemes Act 2021
After a long process of debate and delays since its introduction in 2019 that was exacerbated by the coronavirus pandemic, The Pensions Schemes Act 2021 received Royal Assent on 11 February 2021. Its main objective is to bolster The Pensions Regulator’s (TPR) ability to safeguard pension scheme members.
While the Act is not a complete overhaul of the pensions industry, it introduces major changes that require careful consideration from relevant organizations and authorities within the industry. In this article, we will focus on the two offences that are now deemed criminal offences under certain provisions in the Act.
Avoidance of Employer Debt
A person is considered to have committed avoidance of employer debt if they act (or fail to act) in such a way that prevents the recovery of all or part of a section 75 debt (including contingent debts), prevents it from becoming due, or compromises or reduces it when it should be due. The person has to engage in such acts intentionally with no reasonable excuse for doing so.
Any person who commits such acts is liable, with the sole exception of appointed insolvency practitioners. Organizations and directors, professional advisers, lenders and suppliers, and other third parties can be liable.
The punishment for committing avoidance of employer debt is up to seven years in prison and/or unlimited financial penalties. TPR can also impose a fine of up to £1 million as an alternative punishment.
Conduct Risking Accrued Scheme Benefits
A person is considered to have committed conduct risking accrued scheme benefits if they act (or fail to act) in such a way that negatively and materially impacts the chance of accrued scheme benefits from being received.
The person has to engage in this act knowing or should have known that doing so would have such an outcome, with no reasonable excuse for doing so.
TPR will have to account for the circumstances at the time the act was committed and not without the benefit of hindsight when determining if the person should have known the outcome. TPR will also conduct the same material detriment test as it does for contribution notices (CN) when determining if the act resulted in a negative material impact.
Liable persons and punishments are the same as committing avoidance of employer debt.
How TPR Will Approach Investigation and Prosecution
TPR has stated that it will not have a clearance procedure for these two new offences, but it will be guided by the Act’s policy intention of handling grave intentional or reckless conduct much like when it is handling a CN.
TPR has given high-level guidance on conduct that might be selected for prosecution:
- Acts must be committed with the primary purpose of scheme abandonment.
- Prior conduct from the person committing the act, including value extraction before administration, business mismanagement, and purchase without further investment, will be taken into account.
- The extent of involvement or influence and the relationship of the person committing the act with the scheme and the employer will be taken into account.
- The person committing the act makes significant financial gain to the scheme’s detriment.
- The person committing the act misled or did not inform trustees, TPR, or the Pension Protection Fund.
The two new criminal offences share certain elements that streamline how TPR prosecutes offenders and make it easy for interested parties to understand if they are liable for either offence and what the consequences are.
- Both acts and failures to act that ultimately result in avoidance of employer debt or risking of accrued scheme benefits will be counted as committing a criminal offence.
- Punishment for both criminal offences can be imprisonment of up to seven years and/or unlimited financial penalties. TPR can also choose to fine offenders up to £1 million as an alternative punishment.
- Any person committing these criminal offences can be prosecuted, including companies and their directors, accountants, lawyers, lenders, suppliers, and other contractual parties. Insolvency practitioners are exempt, but only once they have been appointed to do their jobs. Committing such acts before appointment will make them liable for prosecution.
- A person who commits either act with a reasonable excuse is not liable.
What Constitutes ‘Reasonable Excuse’
While the Act itself does not define what a “reasonable excuse” is, TPR did provide guidance on what constitutes a reasonable excuse. It will consider these three following factors:
- The negative effect was either incidental to the act or a fundamentally necessary step to achieve the person’s purpose
- How much mitigation, if any, was provided to offset the negative effect
- If there was a viable alternative that would have avoided or reduced the negative effect