In a first, the Pensions Regulator (TPR) has exercised its anti-avoidance powers under section 47 of the Pensions Act 2004 (PA04). While it has issued contribution notices (CN) under section 38 of the PA04 on several occasions, this is the first time TPR used its section 47 powers issuing a CN in respect of a failure to comply with a financial support direction (FSD) relating to a defined benefit (DB) scheme.
Appreciating that there are plenty of acronyms to get to grips with there, and a long history of litigation that has lead to this point, TPR’s regulatory report provides a neat reminder of its enforcement powers, and the court and tribunal’s findings in relation to those (summarised from the report below).
The report comes after years of litigation and is a reminder that TPR has a powerful armoury of enforcement powers which it is prepared to deploy in the right case – even where those powers have not been used before. For those involved in managing a company or associated group companies this is also a reminder of the breath of reach TPR has to require financial support to a DB scheme.
In this instance TPR issued a s47 CN against companies within the ITV group following failure by those target companies to comply with FSDs in relation to the Boxclever DB Scheme. At the time of the CNs the full buy-out deficit of the scheme was around £120 million.
Settlement discussion ensured between TPR, the target companies, the scheme trustees and the PPF (the Pension Protection Fund) – by which time the scheme’s buy-out deficient had reduced to around £77 million – resulting in an agreement with all interested parties whereby the targets agreed to a bulk transfer of around 2,800 members into the ITV Pension Scheme. In addition, it was agreed that the targets would make back payments to those members whose benefits had been restricted to PPF levels since the PPF assessment period started.
Consequently, members of the Boxclever Group Pension Scheme will now receive their full pension entitlement (including back payments) rather than such payments being limited to PPF levels.
Below is a summary of the key takeaways arising out of this case as set out in the report. This will be relevant to advisers, employers and trustees, but there is a clear message in the report that TPR is open, as it did in this instance, to entering into settlement discussions.
Retrospectivity (Court of Appeal, 2019)
The court recognised that DB schemes will often have been affected by decisions/circumstances from before the introduction of PA04. This case confirmed
that TPR is not precluded from relying on such matters as part of its enforcement case; i.e. “retrospective” elements of a case can be taken into account when assessing the reasonableness of an FSD.
Discrimination (Upper Tribunal, 2018)
The fact that there may be other parties who could potentially be targets of TPR’s enforcement action, but who are not pursued, does not stop it being reasonable to issue an FSD against a particular party.
Reasonableness factors (Court of Appeal, 2019)
The factors contained within the legislation are not all required to be present for an FSD to be issued and the list is not exhaustive. All relevant factors should be considered and given appropriate weight depending on the circumstances of the case. In particular, the court confirmed that it was not a requirement that the targets received a benefit, albeit on the facts of this case the courts concluded that these targets had received benefits (which had value even if that value could not be readily quantifiable).
Scope of TPR’s case (Court of Appeal, 2015; Upper Tribunal, 2016)
TPR may be permitted to raise a new case before the Upper Tribunal that was not previously included before the TPR’s Determinations Panel. Whether TPR will be permitted to do so in any particular case is a matter of general discretion on the part of the Upper Tribunal.
