Pension Schemes Act 2021: joint MoU from DWP and Pensions Regulator on prosecution of criminal offences

It’s been over 18 months since new criminal offences came into force under the Pension Schemes Act 2021 (the Act) that could be triggered by non-distressed and distressed corporate activity involving groups with UK defined benefit pension schemes.   In this blog, we set out a reminder of the new criminal offences and our observations on a joint memorandum of understanding (MoU) issued recently by the Pensions Regulator (the Regulator) and the DWP (in its capacity as the ministerial department for which the Secretary of State for Work and Pensions is responsible) setting out the respective roles of the Regulator and the Secretary of State for Work and Pensions in relation to the prosecution of the new criminal offences.

Key criminal offences

Broadly, the two key criminal offences apply where any person acts in a way which:

• intentionally avoids an employer debt to the scheme (“avoidance of employer debt”); or
• they knew or ought to have known would have a materially detrimental impact on the security of scheme benefits (“risking accrued scheme benefits”),

in each case without having a reasonable excuse.

Both offences are punishable by up to seven years in prison and/or an unlimited fine.

A wide range of of non-distressed and distressed corporate activity could potentially fall within the scope of the criminal offences, including M&A activity, financing and refinancing, granting security, corporate reorganisations and dividends. Further, any person can be liable, including corporates, directors, lenders, commercial counterparties and advisers.

For further details about the new criminal offences and the Regulator’s extended civil powers introduced by the Act, see our blog posts here, here, and here.

Prosecutors under the legislation

The legislation provides for three different potential prosecutors for these new offences in England and Wales: the Regulator, the Secretary of State and the Director of Public Prosecutions.  Given the breadth of the criminal offences, representations were made by the pensions industry about the need for clear guidance from relevant prosecutors, together with a joined-up approach between the different potential prosecutors, in order to provide comfort to businesses undertaking non-distressed and distressed corporate activity on how the offences would be approached.

The Regulator issued its policy (the Policy) setting out its approach to the investigation and prosecution of the new criminal offences shortly before the new criminal offences came into force on 1 October 2021 (see our blog on the Regulator’s policy).  While there are some limitations of the Policy, the Policy provides very helpful guidance on the way the Regulator views the criminal offences, including in particular when parties are likely to have reasonable excuse.

However, until recently, there was no indication from the other prosecuting authorities on the approach they might take to prosecution of the new criminal offences in England and Wales.  While this is still the case in respect of the Director of Public Prosecutions, the Regulator and the DWP recently issued a joint memorandum of understanding (MoU) setting out their respective roles in relation to the prosecution of the new criminal offences.

It should be noted that while the Regulator is a potential prosecutor for offences in Northern Ireland, there are other potential prosecutors for offences in Northern Ireland and Scotland.   However, there has been no similar statement from the other prosecuting authorities in Northern Ireland or those in Scotland on their approach to prosecution of these offences.

Joint MoU

The MoU confirms that:

• the Regulator, rather than the Secretary of State, is expected to bring prosecutions for these offences.  This is consistent with the principle of “no duplication”, one of the four guiding principles in a tripartite memorandum of understanding dated February 2008, describing the general roles of the DWP, the Regulator and the Pension Protection Fund;
• the Secretary of State would only be expected to bring prosecutions of these offences if the Regulator ceases to exist, if its ability to prosecute is otherwise hindered, or in other exceptional circumstances.  The MoU doesn’t include any examples of what would constitute exceptional circumstances and this is not a recognised concept in other MoUs for the prosecution of other corporate criminal offences. It’s therefore unclear what circumstances would be exceptional for the Secretary of State to bring a prosecution. Subject to this, the Secretary of State would not initiate a prosecution against a person for these offences where the Regulator has decided against prosecution; and
• should the Secretary of State decide to prosecute an offence, it will consider the Regulator's “then current policy” and guidance on the Regulator's approach to the investigation and prosecution of the offences.  While the Policy is not explicit on this, this seems to mean the current policy in place at the time when the Secretary of State makes a decision to prosecute an offence in relation to that non-distressed or distressed corporate activity.  

The MoU also confirms that the DWP will share information with the Regulator if the DWP is approached to consider or commence investigation or prosecution of the offences and before the Secretary of State brings a prosecution. If the DWP informs the Regulator of a potential or actual investigation or prosecution, it will, subject to applicable law, provide the Regulator with information it requests about that investigation or prosecution.

Commentary

While the MoU is not legally binding, it is helpful to understand that the Secretary of State would not ordinarily be expected to initiate a prosecution of the new criminal offences introduced by the Act, and that in the limited circumstances when it might bring a prosecution of the new criminal offences, it seems that the Secretary of State would follow the Regulator’s guidance in place at the time it decides to bring a prosecution.  That said, the current prosecution policy of the Regulator is only of limited comfort to those who fall within the scope of the new offences as the Policy has no statutory effect and will not bind the Regulator to act in a particular way. In addition, the wording of the Policy is deliberately couched so that it is not definitive on any issue. This gives the Regulator a wide discretion in making a decision to prosecute which would equally apply to the Secretary of State.   However, the “exceptional circumstances” exemption to the Regulator being the usual prosecuting authority for these offences provides additional unhelpful uncertainty on when the Secretary of State would bring a prosecution for these offences.

Those within the scope of the new criminal offences still face the uncertainty of the approach of the Director of Public Prosecutions to prosecuting these new criminal offences.  To date, there has been no indication from the Director of Public Prosecutions on the approach it would take to prosecuting these new criminal offences and it will be interesting to see if the Director of Public Prosecutions takes any steps to issue a statement to provide any clarity in that regard.

If you would like to discuss any of the issues discussed in this blog post, please get in touch with your usual Freshfields contact or any of the authors.