Posted: 14/03/2024
The short answer is yes; that is because the law specifically provides for it now in certain circumstances. The risks associated with defined benefit or final salary pension schemes are not purely financial ones.
You may know that The Pensions Regulator (TPR) has powers to order a contribution to be made to, or another form of financial support be put in place for, a defined benefit/final salary pension scheme. TPR can do so in orders known, respectively, as contribution notices and financial support directions. The purpose of these powers is to ensure that companies meet their obligations to fund their defined benefit/final salary pension schemes properly.
The legislation now extends the pensions compliance framework onto a new level, which means certain conduct can be considered criminal, with sanctions that flow from this. Additionally, the targeted conduct can now be carried out by any associated or connected entity or individual. It is not just the companies which fund a defined benefit/final salary scheme, or the directors of that sponsoring company, who are potentially exposed to this risk.
The breadth of the legislation means that it can draw in those from a wider pool of interested parties who are involved in what they might see as ordinary commercial activity. It has the potential, in principle, to expose lenders who advance financing to companies with defined benefit pension schemes, where certain types of conduct occur.
The legislation lists two criminal offences.
The first offence is where a person acts, fails to act, or engages in a course of conduct which avoids a debt that is due, under other legislation, from a company to trustees to fund a defined benefit/final salary pension scheme.
The second offence is where a person acts, fails to act, or engages in a course of conduct which detrimentally affects the likelihood of defined benefit/final salary pension scheme benefits being received.
The sanctions for both offences are fines, which are unlimited, or up to seven years’ imprisonment, or both.
In a similar vein, the legislation gives a separate power to TPR to impose a civil fine of up to £1 million. This is also where a person acts, fails to act, or engages in a course of conduct which detrimentally affects the likelihood of defined benefit/final salary pension scheme benefits being received.
The criminal offences and fines are backed up by giving fairly strong investigatory powers to TPR.
You might think that the risk of conduct being criminal attaches only to the usual players in a pension scheme set up, such as the trustees who operate pension schemes, or companies which are liable to fund them. That might seem a reasonable assumption to make but it is not the case.
The legislation states that any associated or connected person can be found to have committed these offences.
This has caught the attention of a wide group of people who are neither trustees nor companies who fund pension schemes. A lender to a company with a defined benefit pension scheme can, in theory, be party to conduct which has an impact on a defined benefit or final salary pension scheme.
Penningtons Manches Cooper’s pensions and banking specialists work together to help lenders recognise pensions risks linked to defined benefit or final salary pension schemes, which could in theory turn into criminal risk. We can discuss arrangements and plans to help identify the risks you are exposed to more clearly and take appropriate action to eradicate or minimise them.
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