Important
We are not seeking comments on this section of the policy as it was part of the new enforcement policies consultation in late 2021.
Employer-related investment
In September 2021, Trustees A, B and C are approached by the employer for a loan from scheme funds to enable it to buy some machinery to enhance the capability of the business.
- Trustee A is also the chief financial officer of the employer and a shareholder, and has been a trustee for 10 years.
- Trustee B is a professional trustee with over 20 years in the industry. They have previously been issued with a financial penalty for being party to an employer-related loan in respect of another scheme.
- Trustee C was appointed as a member-nominated trustee in February 2021 and has no previous experience as a trustee but has completed the Trustee Toolkit training. This is Trustee C’s first appointment as a trustee.
The trustees all agree to make the loan to the employer. This is in contravention of section 40 of the Pensions Act 1995, which prohibits any of the scheme’s resources being invested as an employer-related loan. The scheme actuary informs us in December 2021.
In this scenario we may pursue either a criminal prosecution against each of the trustees (for agreeing to make the loan), or a financial penalty against any of the trustees (for failing to take all reasonable steps to remedy the ongoing breach).
We consider the actions of each trustee separately when deciding whether to pursue proceedings against them, and if so, which proceedings to bring.
Based on the information presented in this example, we are likely to decide to:
- prosecute Trustee A (on the basis of that trustee’s experience and personal gain brought about by the loan) and Trustee B (on the basis that this trustee is a professional with considerable experience, and has previously breached the employer-related investment restrictions)
- seek a financial penalty against Trustee C (on the basis that this trustee was involved in the decision and had had sufficient time to appreciate the employer-related investment restrictions but was not a professional trustee, had no history of breaches and had no personal interest in the investment being made)
Contribution notice
Mr E is the chief executive and shareholder of company A, which is the sole employer of a pension scheme with a deficit on a buy-out basis of £50 million. Company A is profitable but has limited free cash to fund the deficit, resulting in a lengthy recovery plan.
Mr E takes deliberate steps to push Company A into administration by failing to make payments to a number of creditors. Company A enters administration and the scheme, together with the other unsecured creditors, receives only its share of the prescribed part, and enters PPF assessment. As part of a pre-pack sale, Mr E, through another one of his companies (Company B), buys the business of Company A free of the scheme. The price paid for business is less than its market value would have been had Company A not gone into administration. Mr G is a director and employee of Company B, appointed by Mr E. Mr G was party to the purchase of Company A’s business, became aware of Mr E’s actions, and sought to challenge them but came under significant pressure from Mr E to go forward with the purchase.
In this scenario we would first look to recover monies for the scheme/the PPF, so are likely to consider using our contribution notice powers. However, given the apparent execution of a plan to separate the scheme from Company A’s business, we would also consider whether a financial penalty or a criminal prosecution might be appropriate. We would take into account a number of factors, including the intention behind the acts, each party’s level of knowledge of how the acts would impact the scheme, the actual impact on the scheme and the benefit received by them. Based on the information presented in this example, we are likely to consider a criminal prosecution against Mr E and seek a financial penalty against Mr G.
Read our high fines policies for more information about how we approach our penalty powers and considerations on the level of penalty.
Read our criminal offences policy for more information about how we approach the offences of avoidance of employer debt and conduct risking accrued scheme benefits, and our prosecution policy for general information about how we approach our criminal cases.
Information gathering
As part of an investigation in which the potential prohibition of Trustee D may be sought, we issue a notice under s72 of the Pensions Act 2004 requiring Trustee D and Adviser F to provide copies of past trustee meeting minutes and relevant correspondence.
Trustee D, a professional trustee, ignores the request and does not provide the information within the required time period. He provides no response to us at all, despite attempts at contact.
Adviser F seeks an initial time extension to provide the information which he acknowledges he has, which we allow. By the time the revised deadline passes, Adviser F has provided some limited information but does not give a detailed and sufficient explanation as to why not all of the information has been provided and when the remaining information will be sent.
The failure to provide information results in a significant delay to our investigation. Eventually we receive a selection of trustee meeting minutes from Adviser F, and the contents reveal that Trustee D had a conflict of interest in the terms of the scheme’s investments and, during that time, Trustee D continues to make decisions on behalf of the scheme. The investment decisions left the scheme significantly more under-funded than it would otherwise have been.
Based on the information presented in this example, and in light of his professional standing, his failure to engage at all, the concealment of his acting in conflict of interest and the impact on our investigation, we are likely to consider a criminal prosecution against Trustee D.
In the case of Adviser F, given his partial compliance and engagement with us, we are likely to consider that a fixed or escalating penalty is the most appropriate approach.