U.K. trustees may end up being criminally prosecuted under a new law if the regulator's policy is not further clarified, industry sources warned.
Under the Pension Schemes Act 2021, which was approved in February and is set to come into force this fall, the U.K. Pensions Regulator was given additional powers to better hold company directors accountable for their actions when their decisions could affect pension funds. The new powers, granted by the Department for Work and Pensions, mean TPR could send company directors to prison or fine them for acting in any way that is detrimental to pension funds. These powers aim to reduce reckless behavior by company directors who avoid employer obligations to pension funds or put participants' savings at risk.
But the recently unveiled guidance on how TPR will investigate and prosecute individuals appears to be going beyond the original intent of only holding company directors responsible and could now capture trustees, bankers that lend to plan sponsors, advisers, insurers and investment managers.
Sources said the guidance could suggest that even when companies are given clearance from TPR to move forward with corporate transactions, for example a company sale, individuals involved in those transactions cannot be guaranteed that they won't be prosecuted if things end up negatively affecting the pension fund. The Pensions and Lifetime Savings Association, which represents retirement funds with a total £1.3 trillion ($1.8 trillion) in assets, called on TPR to explicitly outline how trustees will be protected from prosecution.
"While we fully support TPR's policy intent behind the new criminal offenses, there is an inherent contradiction between its aims and what is currently provided in the draft guidance," Tiffany Tsang, head of DB, LGPS and investment at the PLSA in London, said.
Ms. Tsang said that TPR stated in its guidance that it intends to target "more serious and intentional or reckless conduct" rather than to "change commercial norms."
Ms. Tsang said the PLSA wants the regulator to confirm that where detriment to a pension fund has been fully mitigated, the regulator would not expect there to be grounds for prosecution.
Ms. Tsang added that TPR should also make it clear that once a transaction clearance was obtained, prosecution won't follow.
Alistair Russell-Smith, partner and head of corporate DB at U.K. consultant Hymans Robertson LLP in London, agreed that TPR's new powers appear quite wide-ranging. "It's helpful to have the guidance as opposed to not having it … I do agree that it doesn't give complete clarity on how TPR will operate in some circumstances," he said.
"It would be helpful for this guidance to be updated in the most nuanced areas in the next years," he said.
