The Pensions Regulator

A regulatory scenario

Applying a consistent set of risk-based criteria to the circumstances of individual schemes will enable the Pensions Regulator to target its resources on achieving the best overall outcome for members of work-based pension schemes.

To show how this works in practice, we have set out a regulatory scenario with some practical examples showing the approaches and powers we used to reach our defined outcome. We will add more sceanrios from time to time.

Stage 1
A bank may contact us because they are concerned that a trustee has asked them to transfer a large amount of money from the trustee bank account to a Swiss bank account in the trustee's name. Although they are reluctant to do so, they are unable to refuse as the account is set up in such a way that one trustee's signature is sufficient authority. Here, it is clear that there is an immediate risk to members' benefits and our priority would be to prevent the transfer from occurring. We would therefore consider using our power under section 15 of the Pensions Act 2004 to apply to a court for an injunction to restrain the trustee from transferring the funds. The fact that only one trustee's signature was required to transfer funds gives us cause for concern that the scheme's internal controls are not effective in protecting the fund and therefore members' benefits. We would, at least, raise this with the trustees, and refer them to the Pensions Regulator's code of practice. We might also decide to investigate further into how well the current trustees were running the scheme and might, for example, request copies of trustee minutes. This information may indicate that we need to provide some guidance in specific areas, or possibly that the scheme is being so badly run that the appointment of an independent trustee under section 35 of the Act is required.

Stage 2
In example 1, the trustee could be acting with fraudulent intent and, therefore, once we had taken the appropriate immediate action, we would consider using our power under section 33 of the Pensions Act 2004 to prohibit the trustee from acting in respect of that scheme - and probably from any other pension schemes. The trustee's name would be placed on our register of prohibited trustees. However, situations may arise where the cause of the problem is not so clear cut. For example, we may receive a whistleblowing report from a pension scheme provider that employee and employer contributions to a group personal pension plan have not been received for several months. We would need to carry out an investigation in order to discover why this had occurred. This would include determining whether the employer was in financial difficulty and establishing whether or not employees' contributions had been deducted from their salary. The reason for the breach could simply be down to poor administration by the employer, who may not have even deducted the contributions from salary.

If initial investigation revealed that the breach was caused by poor administration, we would probably have more of an educational role to play, initially, in order to make the employer aware of their responsibilities. In the first instance we would probably direct them to our website, but would provide more information specific to their needs, if required - this could be written information or just talking through a particular issue over the phone. It may also be appropriate for us to monitor the situation by keeping in regular contact with the employer and constantly ensuring that they are taking the necessary steps to enable the payment of contributions to be made on time. If, after having been given the opportunity to rectify the breach, the employer has still failed to do so, we may consider issuing an improvement notice using our power under section 13 of the Act to ensure that the breach is rectified.

Alternatively, it may be discovered that the employer is in financial difficulties and has been redirecting contributions into their company bank account. Here, it would probably be appropriate for us to consider taking more punitive action such as prosecuting the employer under section 111A (12) of the Pension Schemes Act 1993 for fraudulently evading payment of employee contributions.

Stage 3
In Example 2, we would want to ensure that any unpaid contributions are paid over to the scheme as soon as possible. If the cause had been due to administrative failure or misunderstanding, the employer should be willing to enter into negotiations with us. We would monitor the situation closely and get regular updates from the employer on progress made until the situation was rectified. However, in the more serious case of the employer deliberately redirecting the contributions into the company bank account, we may consider using our power under section 17 of the Pensions Act 2004 to apply to the court to recover the unpaid contributions.

Stage 4
In example 3, in the first instance we would provide any guidance we could to ensure that the employer understood exactly what their responsibilities were. We would then aim to ensure that the employer put in place the necessary administrative systems so that the contributions would be paid over on time. If the employer still failed to rectify the breach, we would consider issuing an improvement notice specifying what actions we required them to take within a certain timeframe. If the employer failed to comply with the actions specified in the improvement notice, we could consider issuing a determination notice for failure to comply which could result in the determination panel deciding to impose a fine on the employer. This action would only be considered as a last resort if the employer appeared to be deliberately obstructive. We would much rather work with the employer and help them overcome any problems so that the contributions could be paid on time.