Regulator proposes a new monetary penalties policy and definition of “professional trustee”

The Pensions Regulator is consulting on a new policy for monetary penalties applicable to trustees (including managers for non-trust based schemes and any person who exercises trustee functions, such as directors of a corporate trustee) and their advisers who contravene pensions legislation.  It is also consulting on a revised description of a professional trustee, which the Regulator generally intends to use across its activities.

This latest consultation paper and draft policy follows on from the response to the Regulator’s consultation on “21st century trusteeship” (see Pensions Bulletin 2016/51) and should be seen in the context of the Regulator’s concerns about, and desire to improve, the quality of trusteeship and scheme governance.

Monetary penalties

The Regulator is proposing a penalty framework consisting of three bands, depending on the severity of the breach, and the type of person involved with the breach.

Under most pensions law, the Regulator has discretion to impose a penalty up to the statutory limit of £5,000 for an individual or £50,000 in other cases (eg a corporate trustee).  Where the Regulator decides that a fine is appropriate, it now intends to apply the following banded approach in respect of an individual:

• £0 - £1,000 for Band 1 breaches (eg failing to submit the scheme return on or before the return date)
• £0 - £2,500 for Band 2 breaches (eg failing to provide members with a statutory money purchase illustration (SMPI) within the required timeframe); and
• £0 - £5,000 for Band 3 breaches (failing to process core financial transactions promptly and accurately)

The range of each fine is ten times higher for non-individual breaches, eg £0 - £10,000 for Band 1 breaches involving a corporate trustee.

This policy will not apply to breaches of the auto-enrolment legislation or where there is non-compliance with a statutory notice.  The mandatory penalty regime where there has been a failure to prepare a chair’s statement is unaffected.  The Regulator also sets out a different scale where there have been scheme return breaches.

Professional trustee

The Regulator is also consulting on its definition of a “professional trustee” as it expects such trustees to demonstrate a greater level of knowledge and meet a higher standard of care than other trustees and so they are likely to be subject to tougher enforcement action, such as higher penalties when things go wrong.

Initially the Regulator proposed a definition that was simply a trustee who charges for their services.  However, it now recognises that there is an increasing trend for trustees to receive some kind of financial compensation (beyond reimbursement of necessary or incurred expenses).  Therefore the Regulator will not automatically consider a trustee who is receiving financial compensation for being a trustee to necessarily be a professional trustee.  It also works the other way in that the Regulator does not want persons to fall outside the definition of professional trustee merely because they are not receiving direct remuneration for their services.

Under the new definition, the Regulator will consider a professional trustee to include any person, whether or not incorporated, who:

• Acts as a trustee of the scheme in the course of the business of being a trustee
• Is an expert, or holds themselves out as an expert, in trustee matters generally

The Regulator is clear that an “independent trustee” is not the same as a “professional trustee” and therefore is not using independence in the proposed new definition.

The closing date for responses is 9 May 2017.

Comment

The new penalties framework is the Regulator’s next step along the road to improve trustee standards.  We hope that it will be applied in a proportionate manner.

The definition of “professional trustee” is interesting.  One tends to be able to identify a “professional trustee” when one sees it, but actually crafting a definition to encompass all cases, whilst excluding lay trustees is harder than it first seems.

DWP proposes quick fix for pensioners trapped within schemes in financial difficulty

The DWP is proposing to adjust the regulations governing the transfer of contracted-out rights to enable pensioners with such rights to be transferred, with their consent, to a receiving scheme that has never been contracted-out, but only where the transferring scheme is in financial difficulty.

This work is separate to that on the bulk transfer of contracted-out rights without member consent to schemes that have never been contracted-out, on which the Government intends to act (see Pensions Bulletin 2017/12).  It also intends to extend the proposed new provision for pensioners so that it applies more generally.  However, for the time being, the new measure is limited to where the transferring scheme is undergoing a PPF assessment, or where a regulated apportionment arrangement has been entered into.

The Government is taking this first step in order that pensioners of schemes in financial difficulty can get a better deal in a scheme set up after 5 April 2016 than they would through being forced by DWP law to stay put and their current scheme entering the PPF.  It will also ensure more parity with deferred pensioners as legislation currently permits their benefits to be transferred with their consent to schemes that have never been contracted-out.

Pensioners consenting to a transfer will need to acknowledge in writing that the benefits to be provided by the receiving scheme may be in a different form and of a different amount to those which would have been payable by the transferring scheme; and may not provide a survivor pension.

There is only a short consultation period closing on 23 April 2017.

Comment

This change to DWP law has clearly been expedited due to events, with BHS pensioners likely to be the first to benefit (see Pensions Bulletin 2017/09).  However, we see no reason why the Government could not be bolder and extend it immediately to all transferring schemes, not just those in financial difficulty.  After all, the pensioners still need to consent to the transfer.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.