This policy sets out how The Pensions Regulator will use its powers to impose monetary penalties under pensions legislation (including section 10 of the Pensions Act 1995 and regulation 28 of the Occupational Pension Schemes (Charges and Governance Regulations 2015) and the Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021).
This document should be read in conjunction with our scheme management enforcement policy.
Published: August 2017
Last updated: June 2023
1 June 2023
Updated throughout to reflect changes to climate reporting requirements and master trust penalties.
15 December 2021
Following consultation, we have added a new appendix supporting new requirements on climate change.
August 2017
First published.
Scope of this policy
This policy is relevant to any trustee, manager, employer, adviser or other person who we may issue with a monetary penalty for contravening pensions legislation, including those involved with public service pension schemes. In this document, unless the context suggests otherwise, the term ‘trustees’ should also be taken to mean managers in the case of schemes which are not trust-based and any person who exercises trustee functions (for example directors of a corporate trustee).
Our regulatory remit extends across the three legal jurisdictions of England and Wales, Scotland and Northern Ireland. This policy is applicable to all three jurisdictions. We refer throughout to legislation applicable in England and Wales, which should be read as including references to the equivalents for Scotland and Northern Ireland.
This policy does not cover the following:
- high fines imposed by us under s88A of the Pensions Act 2004, for avoidance or breach of information requirements1
- penalties imposed by us for non-compliance with the employer duties and safeguards under the Pensions Act 20082
- penalties imposed by us under sections 40(1) and 41(1) of the Pensions Act 2008 for non-compliance with a statutory notice3
- fixed and escalating penalties imposed by us under sections 77A and 77B of the Pensions Act 2004 for failure to comply with our information gathering powers4
- fixed and escalating penalties imposed by us under Sections 17 and 18 of the Pension Schemes Act 2017 for failure to comply with a request for information5
Footnotes for this section
Approach to monetary penalties
We impose monetary penalties to promote compliance with pensions legislation. Penalties punish wrongdoing, deter repetition and act as a warning to others.
Discretionary penalties
Where there is a breach of pensions legislation, we have a range of enforcement options, often including the power to impose monetary penalties.
When considering whether to impose a monetary penalty and the amount of any such penalty, we will follow the approach set out in this policy. We will apply our risk-based approach and take into account the relevant facts of each case and the underlying objective in imposing a penalty.
Most of our penalty powers enable us to impose a penalty on each person who has failed to comply with a legal requirement, for example on each trustee rather than on the trustee board as a whole. In such cases, we would take into account the relevant facts and circumstances relating to each person. However, penalties imposed on trustees under the the Occupational Pension Schemes (Charges and Governance Regulations 2015) and under the Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021) must be imposed on a joint and several liability basis.
Our approach to calculating the amount of the penalty for failing to submit the scheme return to us on time is set out in Appendix 2.
Our approach to calculating the amount of penalty for failing to comply with a requirement under the Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021) is set out in Appendix 3.
Mandatory penalties
Trustees of defined contribution schemes (including a master trust scheme) must produce a chair’s statement annually. The Occupational Pension Schemes (Charges and Governance) Regulations 2015 require us to issue a mandatory penalty where we receive an indication in the scheme return or form the opinion through a whistle blowing report and/or investigatory work, that there has been a failure to prepare a chair’s statement. A master trust scheme will also be expected to send us its chair’s statement every year with its annual report and accounts. A penalty notice will therefore be issued where we become aware of the breach via any such route. Our approach to determining the amount of the penalty for a breach of the chair’s statement requirement, is set out in Appendix 1.
In addition, the Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021) require us to issue a mandatory penalty where we are of the opinion that there has been a failure to comply with the requirement to publish a climate change report on a publicly available website, accessible free of charge, within the required timeframe.
Our approach to a failure to publish a climate change report, is set out in Appendix 3.
These mandatory penalties must be imposed on a joint and several liability basis. We have no discretion not to issue a penalty notice in these circumstances. The fact the penalty is mandatory reflects the importance and significance of compliance.
Other enforcement action
In addition to the imposition of a monetary penalty, we expect the underlying breach to be remedied if this has not already been done. Other action may follow (or be taken in conjunction with) the imposition of a monetary penalty, including investigation and exercise of other powers. Such action may also result in further penalties, for example if a person fails to comply with an improvement notice. Any monies collected from penalties are paid to HM Treasury.
Reporting and remedying a breach
The people involved in running occupational and personal pension schemes are under a duty to report a breach of the law if they have reasonable cause to believe it is likely to be materially significant to us.6 Reporting a breach will not automatically result in us imposing a financial penalty (except where a penalty is mandatory). However, a failure to report a breach when required to do so is likely to result in a penalty for the failure to report and a penalty for the underlying breach. There is therefore an incentive for a person who has breached pensions legislation to report it themselves where required.
In calculating the amount of any penalty, we will take account of relevant factors, including the person’s engagement and co-operation with us. Those who notify us of issues in advance, report breaches to us quickly, co-operate with us and seek to resolve breaches swiftly and effectively are more likely to receive a lower penalty than those who do not (see 'Calculating the penalty' below). Deliberate concealment of a breach is likely to result in a higher penalty (see 'Assessing the band level' below).
Where a breach has occurred, we expect action to be taken to address any issues and to ensure that legislative requirements are met from then on. If we consider that a person is failing to do so we are more likely to take other action in addition to imposing a penalty for the breach. For example, we may issue an improvement notice and impose a further penalty if it is not complied with.
Footnotes for this section
- [6] See our code of practice modules on reporting breaches of the law.
The statutory threshold for a monetary penalty
We only have the power to impose a monetary penalty if the relevant legislative conditions are satisfied.
Some provisions specify a particular timeframe within which something must be done (for example, the scheme return must be submitted on or before the date specified in the scheme return notice). Other provisions require something to be done within a ‘reasonable period’ or ‘as soon as reasonably practicable’. Our codes of practice explain what is a ‘reasonable period’ or ‘as soon as reasonably practicable’ for various provisions of pensions legislation.
A number of legislative provisions refer to a person failing to take ‘all reasonable steps’/’all such steps as are reasonable’, or failing ‘without reasonable excuse’ to do something. In such cases, we will consider whether the legislative conditions are met in respect of each person on whom we are considering imposing a penalty.
Ignorance of the law is not an excuse for failing to comply with legal obligations. We will consider on a case by case basis whether the relevant conditions have been satisfied, including what further steps, if any, should reasonably have been taken as well as factors such as:
- whether adequate internal controls were in place, including identifying and assessing risks, producing and implementing an action plan and monitoring the performance of tasks
- whether all reasonable efforts were made in advance to ensure compliance with legal obligations (for example to obtain any information needed from a third party)
- whether we were notified of the issue causing the breach in advance of the statutory deadline for compliance
- any unforeseeable events or events outside a person’s control that have adversely affected their ability to comply with their duties and other relevant circumstances (including the resources and support available to the person to assist them in meeting their duties)
Where the requirement is to do something within a particular timeframe, or on or before a particular date, reasonable steps must have been taken within that timeframe (or in good time before that date).
The Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021) refer to trustees undertaking certain activities ‘as far as they are able’. For further guidance on how we approach this requirement, see Appendix 3.
Factors we take into account when deciding whether to impose a discretionary monetary penalty
In determining whether to impose a discretionary monetary penalty, we will take account of the underlying objective in imposing a penalty, relevant circumstances of the breach and any representations made. Factors will vary from case to case. Broadly, the factors we will take into account include those concerning the nature and impact (or potential impact) of the breach (see 'Assessing the band level'), as well as the person concerned and their conduct (see 'Calculating the penalty'). Where more than one person is in breach we will consider the relevant factors in respect of each person.
Penalty principles
Where we decide to impose a monetary penalty, the following principles will guide us in determining the amount of the penalty.
- The penalty should be proportionate to the nature of the breach and any harm caused (for example the number of members affected and/or the level/significance of detriment).
- The amount of the penalty should aim to change the behaviour of the person in breach.
- The penalty should aim to deter repetition of the breach among the wider regulated community.
Any relevant aggravating or mitigating factors may be taken into account (see 'Calculating the penalty' below).
Penalty framework
Overview
Our approach to calculating the amount of the penalty:
- for a breach of the chair’s statement requirement, is set out in Appendix 1
- for failing to submit the scheme return to us on time, is set out in Appendix 2 (excluding master trusts). Please refer to the framework in this section and our master trust schemes supervision and enforcement policy
- for failing to comply with a climate change governance and reporting requirement, is set out in Appendix 3
Where we decide to impose a monetary penalty, we will usually calculate the penalty in accordance with the framework explained in this section. The amount of the monetary penalty will generally depend on the person concerned, band level and any aggravating or mitigating factors.
We will first consider whether the middle of the relevant band range should be the starting amount (and then adjust the penalty amount to take account of aggravating or mitigating factors), but we may choose a different starting amount if we consider it appropriate, having regard to proportionality and the likelihood of achieving our underlying objective.
However, we have discretion to impose a penalty up to the statutory limits, which are generally £5,000 in the case of an individual and £50,000 in any other case (for example a body corporate). In the case of some requirements, lower amounts have been prescribed.
| Band level (nature and impact/potential impact of breach) | Examples7 | Type of person | Range (£) (subject to statutory maximum) |
|---|---|---|---|
| 1 |
|
Individual | 0-1,000 |
|
Any other case |
0 - 10,000 | ||
| 2 |
|
Individual |
0-2,500 |
| Any other case | 0 - 25,000 | ||
| 3 |
|
Individual |
0-5,000 |
| Any other case | 0-50,000 |
Footnotes for this section
- [7] These are examples of requirements which are likely to fall within each of the three band levels, subject to consideration on a case- by- case basis. Unless otherwise indicated, these examples could arise in the case of any scheme.
- [8] As defined in Regulation 1(2) of the Occupational Pension Schemes
Assessing the band level
We will assess the nature and impact (or potential impact) of the breach in order to determine what band level it falls into (1 is the least severe; 3 is the most severe). We are guided by our statutory objectives and may take account of any consideration which is relevant in a particular case. These may include:
- the likelihood that and/or extent to which a breach may have a detrimental impact on members (including the number of members affected)
- the likelihood that and/or extent to which a breach may result in an increased reliance on the employer covenant
- the likelihood that and/or extent to which a breach may lead to compensation being payable from the Pension Protection Fund
- whether there is evidence of dishonesty, lack of integrity, fraud, deliberate concealment or intentional or reckless breach
- the likelihood that and/or extent to which a breach may impact our ability to carry out our regulatory activities effectively
- the likelihood that and/or extent to which a breach may pose a significant or systemic risk to our statutory objectives
- the likelihood that and/or extent to which a breach may undermine public confidence in pensions
The particular circumstances of a breach will be taken into account when determining the appropriate band level. This means a breach of the same requirement could fall under different band levels depending on the particular circumstances of each breach. Some examples of requirements which are likely to fall within the three band levels, subject to consideration on a case-by-case basis, are shown in the table in the section above (see penalty framework, overview below).
Band assessments based on the underlying breach
Certain requirements arise where there has been a breach of another duty (for example, the duty to report a breach of the law to us or to comply with an improvement notice or compliance notice). In assessing the secondary breach we will take into account the nature and impact (or potential impact) of the underlying breach.
Calculating the penalty
In calculating the penalty amount, we will choose a starting amount (within the relevant band range) which is appropriate, having regard to proportionality and the likelihood of achieving our underlying objective. We will first consider whether the middle of the relevant band range should be the starting amount but we may depart from this if we consider it appropriate.
We may then adjust the starting amount to take account of relevant factors, primarily relating to the person concerned (or anyone exercising functions on behalf of that person for example directors of a corporate entity) and their conduct. Examples of factors we may take into account include:
- the track record of the person in complying with their duties and obligations
- whether the breach could have easily been prevented
- the extent to which the breach was caused or exacerbated by circumstances outside the person’s control
- where the person is a trustee or pension board member, whether they are able to demonstrate that they possess adequate knowledge and understanding and have a training schedule in place
- the conduct of the person once issues have been identified, for example:
- whether they notify us in advance of an issue which may cause a breach
- the speed and co-operation shown to address any issues effectively, including both remedying any detrimental impact on members and preventing future breaches
- whether they accept responsibility for the non-compliance or demonstrate entrenched behaviours
- their willingness to engage and co-operate with us
- whether the person has expertise, or represents, promotes or holds themselves out as having expertise, in an area relevant to the breach
- where the person is a trustee, whether they receive remuneration beyond their necessary expenses and the circumstances of any such remuneration (including the amount)
- whether the trustee or pension board member(s) acts in relation to multiple schemes
- whether a person is a professional trustee, or where the trustee is not an individual, whether any person who exercises any trustee function (for example a director of a corporate trustee) is a professional trustee (in these circumstances if there are other aggravating factors the penalty is likely to exceed the band range, subject to statutory limits)
- whether a person is acting in a professional capacity, providing a service in relation to the scheme (for example an accountant, actuary or legal adviser) In these circumstances if there are other aggravating factors the penalty is likely to exceed the band range, subject to statutory limits
We retain discretion to depart from the band range where we consider it appropriate. We will seek to ensure that the penalty amount is proportionate overall and likely to achieve the underlying objective in imposing a penalty (see 'Approach to monetary penalties' above).
Joint and several liability penalties
Penalty notices are made on a joint and several liability basis when issued to:
- trustees under regulation 28 of the Occupational Pension Schemes (Charges and Governance) Regulations 2015 and
- trustees and/or third parties under regulation 9 of the of the Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021)
This means we can enforce the penalty in full against all or any of the parties.
The penalty amount will be calculated in accordance with the framework set out above, but on the basis that the bands apply to the trustee board as a whole, subject to statutory maximums. The maximum penalty is £5,000 if some or all of the recipients are individuals or £50,000 in any other case (unless a lower amount has been prescribed by legislation). Our approach to determining the amount of the penalty for a breach of:
- the chair’s statement requirement, is set out in Appendix 1
- a climate change governance and reporting requirement, is set out in Appendix 3
Where a penalty notice is issued on the basis of joint and several liability, it is for the relevant parties on whom the penalty has been imposed to agree among themselves how the penalty will be apportioned between them. We would generally expect the penalty to be paid in a single payment.
Bodies corporate, Scottish partnerships and individual officers
Where a body corporate or Scottish partnership is in breach of pensions legislation it will be usual practice to impose the penalty on that entity where the breach resulted from its activities. However, where a breach is attributable to the consent, connivance or neglect of one or more officers9 we may instead impose the penalty on those officers where we have power to do so.
Where we have evidence that individual officers are culpable, we will impose the penalty on whoever we consider to be the most appropriate person (for example the body corporate/Scottish partnership or individual officers).
A penalty will only be imposed where there has been a failure to comply with statutory requirements. We recognise that some corporate trustees may be structured in such a way that they do not have any assets and may not wish to alter this position (for example, to remain dormant for corporation tax purposes). The fact that a corporate trustee has no funds does not exempt it from paying penalties imposed under pensions (or indeed other) legislation where it has failed to comply with statutory requirements. Penalties imposed on a corporate trustee must be met by or on behalf of the corporate trustee.
Footnotes for this section
- [9] ‘Officer’ means:
- in relation to a body corporate, (i) any director, manager, secretary, or other similar officer of the body, or a person purporting to act in any such capacity, and (ii) where the affairs of a body corporate are managed by its members, any member in connection with his functions of management
- in relation to a Scottish partnership, the partners
Restriction on use of scheme assets to provide indemnification for certain penalties
In some circumstances legislation prohibits scheme assets being used to reimburse, or provide for the reimbursement of, a penalty imposed on a trustee. Providing for the reimbursement of a trustee in respect of a penalty includes (among other things) payment for insurance where the risk includes the requirement to pay such a penalty. Where any amount is paid out of the assets of a pension scheme in contravention of a restriction, trustees may be required to pay an additional penalty and/or be guilty of an offence.
Procedure
In deciding whether to impose a monetary penalty, and in exercising our power to impose a monetary penalty, our teams and the Determinations Panel will follow the relevant procedure:
- in relation to cases under the Occupational Pension Schemes (Charges and Governance) Regulations 2015 or the Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021), we will follow the procedure set out in our scheme management enforcement policy
- in all other cases, we will follow the staff determinations procedure (PDF, 123kb, 12 pages) or case team procedure, and the Determinations Panel will follow the Determinations Panel procedure
The procedures describe how decisions on cases are made, and when and how they can be referred to the appropriate tribunal.
Hardship
We may take into account representations made by a person in relation to a monetary penalty that payment of the penalty amount within the period specified would result in undue financial hardship. Where the penalty notice has been issued to more than one person on a joint and several liability basis, hardship will generally only be considered where it is claimed by all the recipients of the notice. It will be the responsibility of the person(s) claiming hardship to provide supporting evidence for their claim.
Civil recovery
We are responsible for collecting all penalties. When we issue a penalty notice we give a reasonable timeframe to pay (at least 28 days). Penalty notices in respect of certain penalties must specify that payment must be made within 28 days from the date of the penalty notice. There are a number of ways to pay penalties, including by cheque or BACS/CHAPS. We expect full payment within the specified timeframe but, depending on the circumstances, may exceptionally agree to a payment plan. We will issue a receipt in all cases.
If the debt remains outstanding and no payment plan is in place or an agreed payment plan is not being adhered to, we may initiate civil proceedings through the courts to recover any unpaid penalty debt. This may include instruction of bailiffs. Where possible, we may seek to recover the costs and interest in addition to the unpaid penalty debt.
Appendix 1: Chair's statement breaches
The Occupational Pension Schemes (Charges and Governance) Regulations 2015 require us to issue a mandatory penalty where we receive an indication in the scheme return or otherwise form the opinion that there has been a failure to prepare a chair’s statement.
The amount of a penalty for a breach of the chair’s statement requirement is set in legislation and must be between £500 and £2,000. Where there is more than one trustee, the penalty notice must be issued to all trustees and must state that they are jointly and severally liable for the penalty.
The amount of the penalty will generally be calculated as follows:
- all schemes receive the minimum penalty of £500
- the minimum penalty of £500 will increase by 10p per member with money purchase benefits (where a scheme has different sections or a mixed benefit structure), up to the maximum of £2,000
- where a scheme has previously breached the requirement to prepare a chair’s statement within the last three years, the per member penalty element will be doubled, up to the statutory maximum
- where the scheme has a professional trustee in place the penalty will generally be £2,000
We will use the last membership data provided by the trustees on Exchange in determining the amount of penalty.
There may be cases where there are extenuating circumstances, meaning that we need to consider whether the penalty amount determined in accordance with these factors is reasonable. However the penalty will always be a minimum of £500, as required by legislation. When we are notified of extenuating circumstances we will consider them on a case by case basis.
Appendix 2: Scheme return breaches (excluding master trusts)
We view submission of the scheme return on or before the return date specified in the scheme return notice as an essential administrative requirement.10 Failure to submit the scheme return means that we do not have key information about the scheme and therefore prevents us from carrying out our regulatory activities effectively.
The trustees or managers of a scheme are responsible for submitting the scheme return to us. Where any trustee or manager fails to take all reasonable steps to submit the scheme return on or before the return date, our usual approach will be to impose a penalty on that person.
As mentioned in the 'Co-operation with The Pensions Regulator and remedying breaches' section, in addition to imposing a penalty for a failure to submit the scheme return we may also consider taking other regulatory action, including investigation and exercising other powers. Such action may also result in further penalties.
Where we decide to impose a penalty, if the scheme return has by then been submitted we will reduce the penalty amount by 25%. This discount aims to encourage the behaviour we expect, namely swift completion of the scheme return. If the scheme return has not by then been submitted we will take other action to enforce this if necessary.
Typically, we would consider a scheme return breach to be a band 1 breach, although we may depart from this where we consider it appropriate, depending on the facts of a case. Where, for example, the scheme has a large number of members, or a trustee or manager has intentionally failed to submit the scheme return, we may treat it as a band level 2 or 3 breach.
We intend for penalties for scheme return breaches to be easy to communicate and simple for us to apply. Our usual approach for determining the penalty which applies to each person is set out in the following table. We would not usually take into account the structure of the trustee or manager (for example whether it is an individual or not) or its resources in calculating the penalty amount.
| Type of trustee/manager | Penalty amount per trustee/manager | Consecutive penalty amount11 |
|---|---|---|
| Individual or any other case (for example corporate trustee) | £500 | £1,000 |
| Individual who is a professional trustee, or any other case where the person is a professional trustee, or any person who exercises trustee functions is a professional trustee (for example a professional trustee director of a corporate trustee) | £1,000 | £2,000 |
We will not impose a penalty on a trustee or manager if the scheme return is either submitted on or before the return date or they took all reasonable steps to secure compliance on or before the return date. As mentioned above, where this is not the case we would usually impose a penalty which is calculated in accordance with the table above.
However we may exercise our discretion to depart from the usual penalty amounts in exceptional circumstances or if we consider that calculating the penalty amount in accordance with the above table would, in all the circumstances, produce an outcome that is not reasonable and proportionate. For example, the penalty we impose on a trustee or manager of a small scheme may be lower than the amount set out in the table above.
Examples of circumstances we do not consider to be exceptional include:
- already completing a pension scheme return (PSR) for HMRC
- lack of awareness that a scheme return needed to be completed
- lack of awareness of where to find the relevant scheme information
- lack of awareness of being a trustee or manager
- thinking that a third party had submitted the scheme return (in circumstances where there were inadequate internal controls)
- failing to request information from a third party in sufficient time to be able to submit the scheme return on or before the return date
Footnotes for this section
- [10] As required by section 64(1) of the Pensions Act 2004.
- [11] Where a consecutive penalty is imposed on a trustee/manager for a consecutive breach in respect of the same scheme.
Appendix 3: Breaches of the Climate Change Governance and Reporting Regulations
The Occupational Pension Schemes (Climate Change Governance and Reporting Regulations 2021) require the trustees of certain schemes, including authorised master trusts, to introduce measures to identify, assess and manage climate-related risks and opportunities, and produce a report describing the steps they have taken.
Where trustees fail to publish their climate change report on a publicly available website, accessible free of charge and within the required timeframe, we must issue a mandatory fine. In all other cases where we are of the opinion that a person has contravened the Climate Change Governance and Reporting Regulations, we have a range of enforcement options, including the discretion to issue a penalty notice.
Mandatory penalty
The Climate Change Governance and Reporting Regulations require us to issue a mandatory penalty where the climate change report is not published on a publicly available website, accessible free of charge, within the required timeframe. The fact the penalty is mandatory reflects the importance and significance of compliance. The penalty relates to the publication of the report, not its content. It is, therefore, different from the mandatory penalty for a failure to prepare a chair’s statement, which applies if a statement does not meet the statutory requirements.
The minimum penalty for a breach of the requirement to publish the climate change report is set in legislation as £2,500. Where there is more than one trustee, the penalty notice must be issued to all trustees and must state that they are jointly and severally liable for the penalty. This means we can enforce the penalty in full against all or any of the trustees.
The maximum penalty is £5,000 if some or all of the trustees are individuals, or £50,000 in any other case (for example, corporate bodies).
We will generally approach decisions on the amount of the mandatory penalty as follows.
- All breaches will attract the minimum penalty of £2,500.
- A consecutive penalty will normally be at least £5,000 to reflect the seriousness with which we view repeated or ongoing breaches of legal requirements.
- Where the scheme has a professional trustee in place, the minimum penalty will generally be £5,000 as we expect higher standards from professional trustees.
- We will also consider whether it would be appropriate to issue a penalty higher than the minimum amount, applying a similar approach to how we determine the amount of a discretionary penalty. Examples of factors which we will consider include the following.
- The nature of the body being fined - individual or other (for example, corporate body). The maximum penalty is lower if some or all of the recipients of the penalty notice are individuals.
- The impact of the breach: both the number of members affected, and the significance of any detriment suffered.
- Whether we consider that a higher penalty amount might be more effective in changing behaviour.
- The reasons for the failure. For example, we would be more likely to consider a higher fine in cases where the failure to comply with publication requirements is based upon a failure to comply with the underlying governance requirements.
Where there are underlying breaches of the governance requirements, we may also consider issuing a discretionary penalty for those underlying breaches, in addition to issuing the mandatory penalty for the failure to publish the climate change report.
There may be cases where there are extenuating circumstances, meaning that we need to consider whether the penalty amount determined in accordance with these factors is reasonable. However, the penalty will always be a minimum of £2,500, as required by legislation. When we are notified of extenuating circumstances, we will consider them on a case-by-case basis.
Discretionary penalties
In considering whether to impose a discretionary penalty under the Climate Change Governance and Reporting Regulations, we will adopt the approach set out in the monetary penalties policy in respect of other discretionary penalties. This involves applying our risk-based approach, having regard to proportionality and considering the relevant facts of each case and the underlying objective in imposing a penalty. Please note that any penalties must be issued on a joint and several liability basis, so the 'Joint and several liability penalties' section of the monetary penalties policy will apply.
In addition to imposing a penalty for a failure to comply with requirements on governance and reporting of climate-related risks and opportunities, we may also consider taking other regulatory action. This could include further investigation or exercising other powers, which may also result in further penalties.
'As far as they are able'
A number of the provisions in the Climate Change Governance and Reporting Regulations state that trustees must take certain steps 'as far as they are able'. For example, paragraph 6 of the Schedule states that 'Trustees must, as far as they are able, undertake scenario analysis'. To meet this requirement, trustees must take reasonable and proportionate steps, considering costs and time commitments. As there is joint and several liability, we will look at the actions of the trustees as a whole.
As trustees only have to carry out these tasks 'as far as they are able', the legislation recognises that there may be limitations on what they can reasonably do. Trustees should refer to the Department for Work and Pensions' (DWP) guidance 'Governance and reporting of climate change risk: guidance for trustees of occupational schemes'. This gives further information on how there may be gaps in the data relating to climate change risks that trustees are able to obtain, or limitations on their ability to quantify certain risks, or carry out scenario analysis.
Where such problems are encountered, we expect trustees to be able to describe and explain the steps they have taken to ensure compliance with their legal obligations, the obstacles they have encountered, and the impact those obstacles have had. We would also expect them to have documented the position so that they can demonstrate and explain their actions. For example, trustees will need to explain what efforts they have made to obtain the data, and to fully explain any gaps. They should also outline their plans for overcoming those obstacles, as the quantity and quality of the data available should improve for future reporting periods.
An interpretation of ‘as far as they are able’ will be scheme specific, and so we will consider whether the legislative conditions have been met on a case-by-case basis. We also anticipate that trustees’ ability to carry out these tasks should improve over time, as more information becomes available and reporting becomes more standardised.
Amount of the discretionary penalty
Our approach to calculating the amount of the discretionary penalty will be in line with the framework set out in the 'Penalty framework' section of the monetary penalties policy, applying the band levels and factors shown in the table below. The amount of penalty will generally depend on the persons concerned, band level and any aggravating or mitigating factors.
The nature and impact (or potential impact) of a breach will be considered when determining the appropriate band level. This means a breach of the same requirement could fall under different band levels depending on the circumstances of each case in which such a breach is identified.
We are likely to treat a failure to make an individual disclosure in an otherwise comprehensive climate change report as a band level 1 or 2 breach, depending on the facts of the case and the impact of the failure. For example, a failure to disclose scheme resilience in different temperature scenarios would make it more difficult for a scheme member to see the implications of different temperatures for their pension savings, and so may be treated as band level 2 breach. However, a failure to disclose a description of the role of a person who assists the trustees with scheme governance may not have such an impact for a scheme member, and so would be more likely to be treated as band level 1.
Whether a penalty amount falls at the higher or lower end of a band will also depend on the circumstances and the seriousness of the breach. We will first consider whether the middle of the relevant band range should be the starting amount, but we may depart from this if we consider it appropriate.
Underlying and multiple breaches
Where there is an underlying breach – for example, where there has been a failure to comply with a compliance notice issued to remedy a pre-existing breach – we will consider the nature and impact (or potential impact) of the ongoing underlying breach when assessing the band level.
For example, we are likely to treat a failure to carry out the underlying governance activities (as distinct from a failure to make disclosures) as a band level 2 or 3 breach. However, we may depart from this where we consider it appropriate.
If there are multiple breaches of the regulations, this will be treated more seriously. For example, if trustees breached one or more of the requirements in each of the four core areas (governance, strategy, risk management, metrics and targets), this would be likely to be treated as a band level 3, as it would raise concerns about whether they had established the consistent approach to action and disclosure that is required by the regulations.
| Band level (nature and impact/ potential impact of breach) | Examples | Type of person | Range (£) (subject to statutory maximum) |
|---|---|---|---|
| 1 |
Failure by the chair to sign the climate change report. Failure to include a required disclosure in a climate change report (for example failure to explain a decision not to undertake new scenario analysis) but the report otherwise gives a good explanation to members, and there are no underlying breaches. Failure to produce scenario analysis within the required timescale where the delay is limited, there are good reasons for the delay and the trustees can show reasonable efforts to meet the statutory timeframes. |
Individual | 0-1,000 |
| Any other case | 0-10,000 | ||
| 2 |
Failure to include a required disclosure in a climate change report which materially affects members’ understanding of how well the scheme is managed, but there are no underlying breaches, for example:
Multiple minor breaches of the reporting requirements, such that members will not be able to tell from the report whether the underlying requirements have been properly met. Failure to put in place processes to ensure that persons advising on governance take climate-related risks and opportunities into account where the impact of the failure is limited. |
Individual | 0-2,500 |
| Any other case | 0-25,000 | ||
| 3 |
Failure to identify and assess the impact of climate-related risks and opportunities on investment strategy. Failure to put processes in place to identify, assess and manage climate related risks. Multiple breaches of the climate change governance requirements, with at least one breach in each of the four core areas (governance, strategy, risk management, metrics and targets). |
Individual | 0-5,000 |
| Any other case | 0-50,000 |