Pensions: what's new this week - 24 June 2024
Penalty for breach of chair's statement requirements: what does 'must' mean?
The First-Tier Tribunal has considered the provisions that mandate a penalty for breach of the requirement to provide a Chair’s Statement: James Caldwell (Trustee of the Smith & Wallace & Co 1988 Pension Plan) v The Pensions Regulator. Where trustees are required to prepare an annual governance statement and fail to do so, mregulation 28(2) of the Occupational Pension Schemes (Charges and Governance) Regulations 2015 states that TPR must issue a penalty notice. TPR also has power to review and confirm, revoke or vary a penalty notice.
In this case, there was no dispute that Mr Caldwell had, as sole trustee of the scheme, failed to provide a Chair’s Statement by the due date. TPR argued that it was obliged by the regulations to impose a penalty (no matter what the circumstances), but the FTT took issue with TPR’s interpretation of the statutory provisions.
Although the FTT ultimately dismissed Mr Caldwell’s appeal, it did not accept that the mandatory language of regulation 28(2) ‘excludes from consideration any explanation offered for the breach, however compelling’. Rather, it must have been Parliament’s intention that, although a penalty should ordinarily follow a breach, TPR would be precluded from penalising trustees ‘where wholly exceptional circumstances fully explained and excused their noncompliance and imposition of a penalty would be manifestly unjust’.
In relation to the review provisions, TPR initially argued that it was unable to take account of any reason provided for non-compliance, but later conceded in submissions that it would have discretion to review and revoke a penalty notice in narrow circumstances – (a) where on investigation it transpired that no breach had occurred; (b) where, mowing to some steps taken by TPR, it would be procedurally unfair to maintain the penalty; and (c) where some mother 'specific, extenuating circumstance' would make it manifestly unfair to maintain the penalty. However, none of those circumstances applied in this case.
Tribunal revokes 'disproportionate and oppressive' escalating penalty notice
The First-Tier Tribunal has overturned an escalating penalty notice imposed by the Pensions Regulator (TPR) in relation to a breach of employer auto-enrolment duties. Fixed penalty notices (for example, for failure to file a declaration of compliance) have given rise to multiple references to the FTT in recent years, and it is comparatively rare for such a notice to be revoked (but see the Philip Freeman Mobile Welders case below). In this case, the FTT had cause to consider the separate and ‘more involved’ provisions relating to escalating penalty notices and their review: Gianni’s Glasgow Ltd v The Pensions Regulator.
TPR had issued an unpaid contributions notice to the employer on July 17, 2023, directing it to calculate and pay the unpaid contributions and to provide evidence of compliance to TPR by August 29, 2023. No evidence of compliance was received by the deadline and TPR issued a fixed penalty notice. When it received no response to that notice, TPR issued an escalating penalty notice, meaning that a daily penalty of GBP500 accrued from November 10, 2023 onwards. On December 19, 2023 a director of the employer received an email from TPR at his personal email address and immediately contacted TPR, explaining that he had not received any prior contact from TPR: all correspondence had been sent to his former accountant and had not been passed on to him.
TPR argued that its notices were served appropriately and that the penalties flowed automatically from this. However, the Tribunal took a different view, commenting that the escalating penalty provisions under section 41 of the Pensions Act 2008 provided an incentive to an employer to resolve issues swiftly by increasing the penalty daily – for this to work, individuals need to be aware of them. The Tribunal also considered that TPR had taken too narrow a view of its power to review a penalty notice and had not considered whether it should confirm, vary or revoke the notice (or substitute a different notice) in light of the employer’s representations about the circumstances, including the reasons for the breach, the employer’s intent and the consequences flowing from it.
The Tribunal considered that the evidence provided by the employer was clear and convincing, and that a penalty amounting to more than six times the amount of unpaid contributions (which had ‘long since been paid’) was disproportionate and oppressive and should be revoked. However, the employer’s failure to ensure continuity of payment of contributions following the change of accountant ‘clearly merited a sanction’ and the Tribunal confirmed the earlier fixed penalty notice (GBP400).
Presumption of services was rebutted by clear evidence
The FTT has directed that penalty notices be remitted to TPR to be set aside, in a case where the employer was able to rebut the legal presumption that the notices were delivered: Philip Freeman Mobile Welders Limited v TPR.
In this case, the employer had breached its duty to provide an auto-enrolment declaration of compliance and was issued with a fixed penalty notice and subsequently an escalating penalty notice. The employer claimed not to have received any of the relevant correspondence and to have been alerted to the situation only when a Sheriff Officer mattended its premises. The declaration of compliance was then submitted and the employer requested a review of the penalty notices.
TPR refused a review on the basis that the request was out of time, and the FTT struck out the employer’s reference to the Tribunal, stating that ‘once a notice had been posted there was an irrebuttable presumption that it had been received’. The employer challenged the FTT’s ruling, and the Upper Tribunal found that the FTT had been wrong to state that the presumption of service could not be rebutted. It remitted the matter to the FTT to consider whether the notices had in fact been received.
The FTT heard detailed evidence from TPR about its systems and processes for sending out reminder letters and notices. It then heard evidence about the recipient’s postal and email systems, and in particular, recurrent issues with the postal service at the employer’s address. It found that ‘in what must be a quite exceptional set of facts…the compliance notice and the subsequent penalty notices were not delivered’ and that there was therefore a reasonable excuse for not responding to the compliance notice. The penalty notices should therefore be set aside.
TPO tightens pre-complaint IDR requirement
We reported recently that the Pensions Ombudsman (TPO) was considering changes to its practices, aimed at reducing both waiting times and its backlog of cases. In the first of a series of blog posts, TPO has now set out a tightening of its requirement that all complainants must have exhausted a scheme’s internal dispute resolution procedure before TPO will investigate their complaint. This means that the informal early resolution process will no longer be available as an alternative. The aim is to implement this change to processes by autumn this year.
Sustainability and pension fund investing - priorities and politics in the U.S., EU and UK
Politicians and lawmakers have long recognised the role of pension funds in the transition to greener finance and a sustainable economy. New governance and reporting requirements continue to come on-stream in the EU and the UK, widening the scope of sustainability issues to be considered and improving transparency by way of governance and reporting requirements. But political and economic headwinds are increasing, ranging from the UK government’s focus on using pension capital to boost the UK economy, to pushback against perceived ‘woke’ agendas in the U.S.
Join us for the next webinar in our Sustainable Transition series on Wednesday July 10, 2024 at 2pm BST, when our panel of speakers will bring together the latest insights and expectations for political and legal change in the U.S., EU and UK.
Click here to register for the webinar
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