DWP provides more detail on new contribution notice and investigatory powers provisions
Published on 29th Mar 2021
In the third in a series of Insights looking at changes being made by the Pension Schemes Act 2021, we look at two sets of draft regulations being consulted on by the Department for Work and Pensions (DWP).
Background
The Pension Schemes Act 2021 considerably strengthens the Pensions Regulator's (TPR's) contribution notice and investigatory powers. The contribution notice provisions are relevant to defined benefit (DB) pension schemes and the investigatory powers are relevant both to DB and defined contribution (DC) schemes.
While the Act sets a framework in these areas, it does not contain all of the detail. The DWP is now consulting on two sets of regulations which will help to fill some of the gaps.
What is a contribution notice?
TPR can issue a contribution notice to a DB scheme employer, or any person who is "connected or associated" with an employer. A contribution notice requires the employer/person to pay a specific sum of money into the DB scheme.
What is changing?
The Act makes a number of changes to TPR's contribution notice powers. These include increasing the number of factors that it can take into account when deciding whether it is "reasonable" to issue a contribution notice and introducing two new tests for issuing a notice. The new tests, which will be available in addition to the existing ones, are the:
- Employer insolvency test (broadly: if there had been an insolvency event triggering a section 75 debt for the employer immediately after the act or failure to act, would the act or failure have materially reduced the amount of section 75 debt likely to be recovered by the scheme?)
- Employer resources test (broadly: has the act or failure to act materially reduced the value of the "employer's resources" relative to the employer's estimated section 75 debt?)
These tests are designed to be easier for TPR to use (and so to make it easier for it to issue a contribution notice), but a statutory defence will be available if certain conditions are met.
What is the DWP consulting on?
The DWP is consulting on draft regulations (The Pensions Regulator (Contribution Notices) (Amendment) Regulations 2021) which will provide more information about the new "employer resources test". The regulations confirm that:
- the "resources of the employer" will be the normalised profits of the employer before tax;
- the question of whether there has been a material reduction in the value of the employer's resources will be decided by comparing the employer's normalised annual profit before tax (calculated using the most recent annual accounts and excluding any exceptional or non-recurring items), with a second figure (calculated using the most recent annual accounts and excluding exceptional or non-recurring items, but also taking account of any effect the act or failure has on the resources of the employer);
- TPR will determine whether items are to be treated as exceptional or non-recurring, and their value; and
- TPR will determine the monetary value of the effect of the act or failure on the resources of the employer.
The consultation paper confirms that the regulations "will work alongside The Pensions Regulator’s code of practice and any other related guidance so that industry are informed on how the “employer resources test” will be applied".
What about TPR's investigatory powers?
The Act gives TPR a new power to require people to attend an interview, extends the purposes for which an inspector can enter premises and introduces new fixed or escalating penalties for non-compliance with information gathering requirements.
The DWP is consulting on draft regulations (The Pensions Regulator (Information Gathering Powers and Miscellaneous Amendments) Regulations 2021) which provide more detail in these areas. They confirm:
- the information that TPR will need to include in a notice calling someone for interview;
- how the extended power to enter premises will apply in multi-employer schemes;
- that the fixed penalty for non-compliance with information gathering requirements will be £400; and
- that the escalating penalty for non-compliance with some information gathering requirements (including the requirement to attend and answer questions at an interview) will be £200 for each day of non-compliance for individuals, but otherwise £500 increasing cumulatively each day by that amount until, after 20 days, the daily rate is £10,000.
Osborne Clarke comment
The consultation will be open until 29 April 2021 and the new powers are expected to come into force later this year (the consultation paper refers to 1 October 2021 for the new investigatory powers).
Although the additional detail puts some flesh on the bones of the provisions in the Pension Schemes Act 2021, it does not answer all of the questions raised by them. In particular, there is still no sign of a change which would stop TPR from looking back at acts and failures to act in the last six years when deciding whether to issue a contribution notice under the new "employer insolvency" or "employer resources" tests.
Read the other Insights in this series:
Climate risk governance and reporting duties: new obligations for occupational pension schemes.
New criminal offences: the Pensions Regulator consults on its policy.
