The Pensions Regulator (TPR) wants everyone to know that it is acting more quickly to intervene where it considers schemes to be underfunded, or where there are indications that employers may be avoiding their responsibilities.
Employers should be wary. Even if the risk of intervention from TPR is small, it is clear that the potential implications of investigations and enforcement action can be very significant indeed.
TPR has some pretty serious powers of investigation. For a start, it has an incredibly wide-reaching power to require the disclosure of relevant information and documents. It exercises this power by the issue of section 72 notices, which can be issued against anyone, and includes not only employers and trustees, but also their professional advisers, connected parties, and financial entities.
The notices can be narrow and targeted, or general and wide-ranging. And the fact that the information may be highly confidential will not excuse non-compliance, for which criminal sanctions can be imposed. In the BHS investigation alone, a total of 123 such notices were issued and resulted in the production of almost 100,000 documents.
TPR’s investigations can also result in other very significant indirect outcomes. For example, as was stated in TPR’s report about Coats Group, published in June 2017, an intention to pay around £310 million to shareholders was put on hold pending the outcome of TPR’s intervention.
But enforcement action from TPR takes it to a higher level altogether and is often no different to high stakes commercial litigation. The potential financial impact can be huge. Since 2005, a total of more than £1 billion has been secured for pension schemes from settlements arising from TPR’s moral hazard powers.
TPR’s regulatory approach is a deliberately proportionate one. This will inevitably result in a variety of approaches being taken, many of which will not involve enforcement action of the nature we have seen with BHS and Coats. But those who underestimate this risk may well regret having done so.
Peter Murphy is partner at law firm Sackers