reporting and whistleblowing under the Pensions Act 2004
by Roderick Ramage, solicitor, www.law-office.co.uk
first published (by distribution to professional contacts) New Year 2006
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.
moral hazards and notifiable events
The "moral hazard" provisions of the Pensions Act 2004 are by now well known (for a summary see article) and continue to cause at least as much delay and inconvenience as early commentators had expected in relation to buying, selling and reorganising businesses and companies, where there is a salary related pension scheme with a deficit. These provisions can pierce the corporate veil by (a) making individuals associated or connected with employers personally liable under a "contribution notice" for the employer's liability for the pension scheme debt and (b) making other companies in the employer's group liable for it under a "financial support direction".
Possibly less well known but almost certainly more important are the provisions under s69 of the Pensions Act 2004 requiring reports to be made to the Pensions Regulator (TPR). Whilst applying to TPR for clearance under the moral hazard provisions is voluntary, the reporting provisions are mandatory, and failure to comply with them can result in "civil penalties" under s10 of the Pension Act 1995 up to £5,000 in the case of individuals and £50,000 in the case of companies. What must be reported is listed below, paraphrasing reg 2 of the Pensions Regulator (Notifiable Events) Regulations 2005, SI 2005/900.
(1) The events to be reported by the trustees of an “eligible” scheme are:
(a) any decision by them resulting or intended to result in any debt to the scheme not being paid in full;
(b) [changes auditor or actuary – revoked 6 April 2009 by SI 2009/617];
(c) transfers to or from the scheme of 5% of the scheme assets or (if less) £1,500,000;
(d) granting benefits on more favourable terms than those provided for by the scheme rules without actuarial advice or additional funding; and
(e) granting benefits for a single member at a cost of more than 5% of the scheme assets or (if less) £1,500,000.
(2) The events to be reported by the employer are:
(a) any decision by it resulting or intended to result in a debt to the scheme not being paid in full;
(b) a decision by it to cease to carry on business in the United Kingdom;
(c) trading wrongfully (s214 of the Insolvency Act 1986), or when a director knows that there is no reasonable prospect that the company will avoid going into insolvent liquidation (s214(4) of that Act);
(d) any breach by a bank covenant except than where the bank agrees not to enforce the covenant;
(e) [change in credit rating – revoked 6 April 2009 by SI 2009/617];
(f) a decision by a controlling company to relinquish control of the employer company;
(g) [changes chief executive or financial director – revoked 6 April 2009 by SI 2009/617]; and
(h) the conviction of an individual for an offence involving dishonesty, if committed while a director of or partner in the employer.
These are "notifiable events" to be reported to TPR by "the appropriate persons", who are the trustees and the employer of a scheme and other persons "of a prescribed description". An “eligible” scheme is defined in Pensions Act 2004, s126 and is, broadly, a final salary occupational pension scheme, but not a scheme prescribed in reg 2 of SI 2005/590.
Where this becomes of particular interest to solicitors and other professional advisers is in s70 of the 2004 Act. Under this section, and notwithstanding the normal professional duties of confidentiality (but with an exception in s311), a professional adviser in relation to a pension scheme must give a written report to TPR as soon as reasonably practicable after he has reasonable cause to believe that a duty relevant to the administration of the scheme imposed by an enactment or rule of law has not been or is not being complied with, and the failure is likely to be of material significance to TPR in the exercise of any of its functions.
Under the Pensions Act 1995, whistleblowing duties were imposed on the scheme's actuaries and auditors, but s70 of the 2004 Act extends them to all professional advisors, which can include solicitors; and by s72 of the 2004 Act, TPR may, by notice in writing, require specified persons, including a professional adviser in relation to an occupational pension scheme, to produce any document or provide any other information, which is of a description specified in the notice and is relevant to the exercise of its functions.
The exception in s311 of the 2004 Act is that communications between a professional legal adviser and his client and any other person made in connection with giving legal advice to the client or legal proceedings are treated as “protected items” and are not required to be produced or disclosed or be liable to inspection. In many cases it will be obvious whether a particular item is reportable, but the interaction of this with the whistleblowing duty under s70 is not wholly clear. There may be instances, whether in the golf club or in conversation with the scheme’s actuary or employer’s auditor (ie not in the course of giving legal advice) in which a solicitor to the trustees may obtain information that he must report. It is not even wholly clear whether information obtained in the course of legal advice to another party will be sufficient to enable the solicitor to rely on the s311 exception.
30 December 2005
copyright Roderick Ramage
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