Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

This week we cover topics including: TPR enforcement and prosecution policies: response and further consultation; PASA: Good practice guidance for DB transfers; TPR transfer letter reminder; TPR employer spot checks; Government update: works in the pipeline; Pensions dashboards: further update; Tax treatment of pension scam victims.

• TPR enforcement and prosecution policies: response and further consultation
• PASA: good practice guidance for DB transfers
• TPR transfer letter reminder
• TPR employer spot checks
• Government update: works in the pipeline
• Pensions dashboards: further update
• Tax treatment of pension scam victims

TPR enforcement and prosecution policies: response and further consultation

The Pensions Regulator (TPR) has published a response to its September 2021 consultation on its approach to exercising powers introduced in the Pension Schemes Act 2021 (PSA21). Finalised policies have been published, together with a further consultation on a new consolidated enforcement policy and updated prosecution policy. The consultation on the new draft policies closes on 24 June 2022.

In light of TPR’s extensive new powers and sanctions introduced by the PSA21 from 1 October 2021, the previous consultation covered TPR’s approach to:

• situations where it has overlapping criminal/civil enforcement powers;
• using its information-gathering powers, including related sanctions; and
• monetary penalties covering the new financial penalties of up to GBP1 million.

Consultation on consolidated enforcement policy and prosecution policy

Following consultation feedback that the multiple enforcement policies currently in place are confusing, a new draft policy consolidating existing enforcement policies for DB, DC, hybrid and public service pension schemes is now being consulted on. This describes the process for, and TPR’s approach to, the investigation of cases and any subsequent enforcement action, including under the new PSA21 powers. The new policy does not replace those currently in place for auto‑enrolment, master trusts and forthcoming collective DC (CDC/collective money purchase) schemes.

The draft enforcement policy incorporates finalised versions of the overlapping powers and information‑gathering policies that were consulted on in September (the new consultation does not seek comment on these sections). On overlapping powers, the policy sets out factors that TPR will take into account when deciding which powers are appropriate to exercise in a given situation, guidance on how those factors might be weighed up, and case studies. It notes that generally TPR won’t expect to pursue criminal proceedings and financial penalty proceedings against the same target for the same act. Where TPR chooses to pursue a financial penalty, it may later pursue criminal proceedings if the act or conduct continues or fresh evidence comes to light that makes this appropriate.

The prosecution policy has also been updated to reflect TPR’s approach when prosecuting criminal offences, particularly in light of the new PSA21 powers.

Policies on high fines

In relation to the monetary penalties approach that was consulted on last year, two finalised policies on high fines have been published: one for avoidance and one relating to breaches of information requirements. The decision to impose a financial penalty is taken in line with the enforcement policy described above. The high fines policies then set out how the amount of the penalty is decided. The approach depends on the penalty being imposed: the penalty for non-payment of a contribution notice (CN) will usually be fixed at 20% of the CN value, capped at £1m, but for other penalties, such as avoidance of employer debt or conduct risking accrued scheme benefits, an assessment is made to place the situation into a penalty band based on a person’s culpability, harm caused to the scheme, and aggravating and mitigating factors (with guidance and examples given on what is taken into account for each of these factors).

Read the consultation response, the new enforcement and prosecution policy consultation and the finalised policies on high fines for avoidance and high fines for information requirement breaches.

PASA: good practice guidance for DB transfers

The Pensions Administration Standards Association (PASA) DB Transfers Working Group has published good practice guidance on DB transfers. This guidance is voluntary, but PASA anticipates that the Pensions Ombudsman will reference it when reviewing complaints, as a source for what good industry practice looks like. It may therefore be a useful tool for cross-checking current practices.

The guidance sets out principles and suggested simplified approaches for faster, safer and more efficient transfers, with a focus on member experience. It sets out a recommended transfer process, including templates for member communications and information requests. Some key recommendations from the guidance include:

• active management of third parties: PASA expects administrators to set deadlines for response times from third parties, communicate with them and with members when those expectations aren’t met, and seek to influence them to improve service for members;
• the use of the transfer template published by the Financial Conduct Authority (FCA) and developed alongside TPR, which sets out the common scheme and member data items required to advise on DB transfers, meaning that administrators and advisers request and provide a consistent set of data;
• the importance of timely and effective member communications: for example, using standard forms with clear instructions, explaining timelines and what is required, and keeping members informed on delays and next steps; and
• dealing with simple, ‘low risk’ transfers quickly, to allow resources to be directed at more complex requests.

Previously, PASA’s transfers guidance had differentiated between ‘standard’ and ‘non-standard’ cases. Following feedback, the new guidance does not make that distinction and applies to all DB transfers, except a limited number of out-of-scope scenarios, such as bulk transfers and pension sharing on divorce.

Read the guidance.

TPR transfer letter reminder

In May 2020, TPR introduced a template letter to be sent to all DB members requesting a cash equivalent transfer value quotation, in addition to normal communications, as part of heightened anti-scam measures in response to Covid-19. The template letter has now been updated to remove Covid-19-related references and TPR has confirmed that it still expects the letter to be sent to DB members in response to a transfer request.

Read the updated letter (also linked on TPR’s scams page).

TPR employer spot checks

TPR has announced that it is undertaking spot checks on employers suspected of failing to meet their workplace pensions duties, in particular where they have failed to make the correct employer pension contributions. Non‑urgent inspections were previously suspended due to Covid-19. TPR notes that on-site inspections will be carried out across a number of regions and cities throughout the UK in the coming months. Employers are usually notified about an inspection two weeks in advance of TPR’s visit.

Read more.

Government update: works in the pipeline

The government’s response to the Work and Pensions Committee’s report on protecting pension savers includes some updates on current developments and future plans, including:

• a call for evidence (due later this month) on decumulation in occupational schemes. This will explore whether to introduce new duties relating to decumulation, including whether there is a need to implement investment pathways (currently required by the FCA, this means offering a range of investment plans based on what a member intends to do with their pension pot, e.g. leaving it invested or taking it as a lump sum);
• ongoing discussions with interested parties about how CDC schemes might be extended beyond the single or connected employer schemes currently being legislated for; and
• the issue of small pots which the government is ‘determined to address’, aiming to make the consolidation of deferred small pots ‘the norm’ within the auto-enrolment market. The Department for Work and Pensions (DWP) is working with an industry group considering consolidation solutions and the underpinning administrative systems; that group is expected to report on progress in May 2022.

Read the response.

Pensions dashboards: further update

Following last week’s progress update report, the Pensions Dashboards Programme (PDP) has published a blog post setting out advice for schemes on preparing for connection to the dashboards. The PDP notes that, although the standards that schemes will have to comply with are not yet finalised, there is a clear indication of what work will be required prior to connection. Schemes are advised to get their data into shape and to plan to ensure that their IT will be ready in time. The DWP is due to publish its response to the consultation on dashboard regulations this summer and the PDP will issue a consultation on the draft standards after that response.

Read the blog.

Tax treatment of pension scam victims

John Glen, Economic Secretary to the Treasury, has responded to a query from the Work and Pensions Committee in relation to the tax treatment of individuals caught up in pension scams and pension liberation. The letter highlights HMRC’s obligation to collect tax lawfully due, and suggests the exercise of any discretion not to do so will be very limited. It notes that such a discretion cannot be used ‘simply on the basis that the tax charge could be perceived as being unfair or unpalatable’ and draws a distinction between pension scams and pension liberation cases. While HMRC has used its discretion in some pension scam cases, the letter states that ‘there is no justifiable basis for doing so in these pension liberation cases as the facts of the case demonstrate that the person involved received or expected to receive a payment from the scheme which was not authorised by the laws enacted by Parliament’.

Read the letter.