Hogan Lovells

Key Dates

Consultation response issued on 29 June 2021.

Consultation paper and draft regulations issued on 18 March 2021.  Consultation closed on 29 April 2021.

The Pensions Regulator (Information Gathering Powers and Modification) Regulations 2021/754 in force on 1 October 2021.  (Referred to in consultation as The draft Pensions Regulator (Information Gathering Powers and Miscellaneous Amendments) Regulations 2021).

The Pensions Regulator (Employer Resources Test) Regulations 2021 expected in force on 1 October 2021. (Referred to in consultation as The draft Pensions Regulator (Contribution Notices) (Amendment) Regulations 2021).


Summary

The DWP has issued a consultation response and two sets of final regulations, concerning the extended powers of the Pensions Regulator (tPR) under the Pension Schemes Act 2021 (the “Act”).

Of particular significance is confirmation that the new employer resources and insolvency tests under the contribution notice (CN) regime will only apply to acts (or failures to act) from 1 October 2021. This is intended to be clarified in the relevant commencement regulations. 

New employer resources test: reminder

The Act extends the circumstances in which tPR may issue a contribution notice (CN) by introducing a new “employer insolvency test” and a new “employer resources test”.  When the new powers are in force (expected 1 October 2021) tPR may issue a CN where either of the new tests is met in relation to a person’s act or failure to act. 

The employer resources test will be met if tPR considers that:

The new test may also be met by a series of acts or failures to act.

CN regulations

The regulations provide that an employer’s resources for the purpose of the new employer resources test will mean the employer’s profits before tax (PBT), adjusted to exclude the effects of non-recurring or exceptional items.  It will be for tPR to decide:

•           whether an item is non-recurring or exceptional;

•           the value of any non-recurring or exceptional items; and

•           the effect of the act or failure to act on the employer’s resources. 

The consultation response explains that tPR must have regard to the financial reporting standards relating to accounting practices issued by the Financial Reporting Council when determining which items are non-recurring or exceptional for this purpose. 

In consultation, the pension industry raised concerns of lack of clarity, in particular around what non-recurring or exceptional items tPR will exclude when calculating an employer’s  adjusted PBT, and how tPR will assess whether a reduction in the employer’s resources is “material”.  About half of respondents to consultation suggested that EBITDA (Earnings Before Interest Tax Depreciation and Amortization) would be preferable to using PBT.

In the consultation response, the DWP has rejected calls to use EBITDA rather than PBT, commenting that EBITDA is not a required accounting disclosure and is not covered by financial reporting standards relating to accounting practices published by the Financial Reporting Council.  It also notes that most companies will have to pay interest and will have to record a depreciation charge and its view remains that PBT is the most appropriate picture of net profits available to support a DB scheme. 

Charities and non-profit organisations

In response to concerns that the draft regulations did not work for charities or non-profit organisations, the final regulations have been amended so that references to “profit” should be read as “net income”. 

CNs: guidance

The consultation response notes that tPR is considering whether there is a need for guidance in relation to the employer resources and employer insolvency tests and its power to issue CNs more generally. 

Information gathering regulations

The Act will give tPR power to require individuals to attend an interview to answer questions and provide explanations on matters which are relevant to the exercise of tPR’s functions.

The scope of the interview power is wide-ranging, and may be applied to:

tPR must give notice to the intended interviewee, setting out the time and place of the interview; the matters on which the person interviewed will be expected to answer questions or provide explanations; plus other matters prescribed in regulations.  

The prescribed requirements include that the notice must also explain how the interview process will be conducted and that the interviewee has the right to be represented at the interview. 

The consultation response explains that where an interview is conducted in connection with a criminal investigation, the notice will confirm why the person is being called for interview and whether as a witness or a suspect.  An interview of suspect will be conducted in accordance with the Police and Criminal Evidence Act 1984 Code of Practice.  tPR is expected to issue policy guidance on how and when it will use its information gathering powers, including how the powers will be used to investigate criminal offences. 

The response also notes that tPR would generally expect to give at least 10 working days’ notice of an interview but there may be occasions when seeking an interview in a shorter timeframe is reasonable. 

Information powers: fixed and escalating penalties

The Act gives tPR power to issue fixed or escalating penalties for breach of requirements to provide information, attend an interview or permit the inspection of premises. 

The consultation response confirms that the level of penalties will remain as set out in the draft information gathering regulations.    The fixed penalty rate will be £400.  The daily rate for an individual will be £200.  For corporate bodies, the daily rate will start at £500 and will increase by £500 each day, to a maximum of £10,000 which will apply on the 20th and each subsequent day. 



Date Accessed: 03/12/2021