hazards etc in the PSA 2021 (art 80)
Roderick Ramage, solicitor, www.law-office.co.uk
distributed to professional associates on 30 September 2021
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does not accept any responsibility for
anything that any person does or does not do as a result of reading it.
The Pension Schemes Act 2021 gives the Pensions Regulator
increased powers to protect pension schemes from detrimental effects of some forms
of corporate activity. The relevant provisions,
in Part 3, come into force on 1 October 2021.
the law before the PSA 2021 changes
The so called “moral hazard” provisions of the Pensions Act 2004 have
two purposes. One is to increase the possibility
that a DB scheme in deficit might obtain additional funding and the other is to
protect the Pension Protection Fund where there are other possible sources of funding
for the scheme.
contribution notice (PA 2004 s38 to s42B) The employer in relation to a pension scheme and
persons connected or associated with it (including other companies, employees, directors,
shareholders), can be made personally liable under a contribution notice made by
TPR, if they are party to an act or a deliberate failure to act, which either:
has as its or one of its main
purposes to prevent the pension debt from being recovered in full or part; or
results in a material detriment
to the scheme.
The material detriment test is met if TPR is of the opinion that the
act or failure has detrimentally affected in a material way the likelihood of accrued
scheme benefits being received. The amount
of the contribution can be all or part of the pension debt calculated on the discontinuance
basis, ie the cost of securing the scheme benefits in full with an insurance company.
financial support direction (PA
2004 s43 to s51) If a scheme employer is a service company or
is under-resourced, ie if its value is less than 50% of the scheme’s deficit on
a discontinuance basis, TPR can make a financial support direction. The effect of this is that other companies in
the same group (and also others including individuals connected
or associated with the employer) can be
made jointly liable for some or all of the debt. In contrast with a contribution notice, which
requires the payment of money, a financial support direction imposes a joint liability,
which will result in actual payment only if the debt become payable.
If a financial support direction is not complied with, TPR may issue
a contribution notice to every person to whom the direction was made, requiring
each person to make a payment to the scheme of the whole or part of the amount by
which the scheme’s assets fall short of the amount or estimated amount of the debt.
clearance (PA 2004 s42 and s46)
TPR has power, on an application to it and if it is appropriate,
to give written clearance that the relevant act or failure to act will not give
rise to a clearance notice or that a financial support direction will not be given.
restoration order (PA 2004 s52 to 56) TPR may make a restoration order in respect of a transaction involving
assets of the scheme to restore the position to what it would have been if the transaction
had not been entered into, if:
a relevant event has occurred
in relation to the employer (either an insolvency or the scheme trustees apply or
receive notice for the PPF to assume responsibility for the scheme); and
a transaction at an undervalue
was entered into not more than two years before the relevant event.
effect of the PSA 2021
Section 103 amends the PA 2005 by adding two more grounds
on which a contribution notice may be served, which are that either the employer
insolvency or the employer resources test is met.
employer insolvency test (PA 2004, s38C) This test is met in relation to an act or failure
to act if TPR is of the opinion that:
(i) immediately after the relevant time, the value
of the assets of the scheme was less than the amount of the liabilities of the scheme,
(ii) if a debt under PA 2004, s75, (“the s75 debt”)
had fallen due from the to the
scheme immediately after the relevant time, the act or failure would have materially
reduced the amount of the debt likely to be recovered by the scheme.
means in relation to an act or failure to act the
time of either the act or the failure occurred.
employer resources test (PA 2004, s38E) This test is met in relation
to an act or failure to act if the Regulator is of the opinion that:
(i) the act or failure reduced the value of the resources
of the employer, and
(ii) that reduction was a material reduction relative
to the estimated debt in relation to the scheme.
and financial penalties (PA 2004 s58A to 58D inserted by PSA 2021 s107)
its enforcement powers, have been strengthened by the following criminal and
increased civil sanctions:
(i) up to seven years'
imprisonment or a fine or both under
s58A (Offence of avoidance of employer debt) and s58B (Offence of conduct
risking accrued scheme benefits);
(ii) a fine under s42A (Offence of failing to
comply with a s 38 contribution notice);
(iii) civil penalties up to a maximum of £1m (see also s88A) under s58C (Financial penalty for avoidance of
employer debt), s58D (Financial penalty for conduct risking accrued scheme
benefits) and s42B (.
notifiable events (PA, s69A, in inserted by PSA 2021,
Apart from the
expanded moral hazard provisions, there are additional notification duties with
criminal and increased civil penalties.
TPR’s objectives in PA 2004, s5
(a) to protect benefits under occupational
(b) to protect benefits under personal pension
(c) to reduce the risk of compensation being
payable from the Pension Protection Fund.
(cza) in relation to scheme funding only, to minimise
any adverse impact on the sustainable growth of an employer,
(ca) to maximise compliance with the automatic
enrolment duties, and
(d) to promote the good administration of
work-based pension schemes.
TPR’s policy on criminal powers given by the PSA 2021 and
its consultation on how it will exercise them are intended to counter widespread
concern that the increase of its powers will stifle normal corporate and business
copyright Roderick Ramage
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