Following the summer recess, the Pension Schemes Bill continued its journey through Parliament as the Bill was read for a second time in the House of Commons today. While there was significant debate in relation to other parts of the Bill, there was a disappointing lack of scrutiny from the House in relation to the new criminal offences which are to be introduced by the Bill.
By way of reminder, the Bill would introduce two new criminal offences, carrying a maximum penalty of seven years in prison, which will significantly impact corporate activity involving groups with a UK defined benefit (DB) pension scheme. The Bill also widens the circumstances in which the Pensions Regulator (TPR) can make connected third parties liable for pension scheme deficits by issuing a “contribution notice”. See our previous blog posts (including a link to our client briefing on this topic) here and here.
When introducing the Bill to the House for a second time, the Government acknowledged that concerns have been raised by the pensions industry that the extremely broad scope of the new offences will disrupt ordinary business activity. However, the Government offered little comfort in this respect, saying only that it was not the Government’s intention to interfere with routine business activity. The Government pointed to the fact that the offences will only be committed where the party has no “reasonable excuse” for their actions.
It is clearly unsatisfactory that companies and individuals will have to rely on such an uncertain concept as “reasonable excuse” when trying to work out whether particular corporate actions could result in serious criminal liability. The Government’s answer to this is that it will fall to TPR to provide guidance in this area (on which it is expected to consult in the next few months). However, it difficult to see how TPR will be able to frame guidance which will be sufficiently broad, robust and reliable to provide the reassurance that the industry needs, particularly given the tremendously wide range of circumstances in which the new criminal offences could theoretically bite. There is a significant risk that, instead of protecting DB schemes as the Government intends, the Bill could have the opposite effect if pension scheme liabilities become a blocker for corporate activity, with the difficulty being most pronounced in distressed situations – a particular concern in view of the financial difficulties in which many companies now find themselves due to the pandemic.
The Bill will now move to the Committee stage in the House of Commons and it remains to be seen whether further amendments will be made before it is passed into law. The pensions industry also awaits the forthcoming consultation from TPR on its proposed guidance as to how these offences will be applied in practice which, if the Bill passes in its current form, will be crucial for all those involved with companies which sponsor DB schemes.