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The Pensions Schemes Act 2021

How the new law may affect you and your business

The Pension Schemes Act 2021 came into force on 11 February 2021.  Whilst a number of requirements are yet to come into effect and further guidance is required, it is clear that there will be a huge impact on corporate, trustee and regulator behaviour over the next year.  This article aims to summarise the key sections of the Act that you should be mindful of, and that may affect your business.

What is the Pension Schemes Act 2021?

When consultation first began, the overall aim was to enact a criminal offence to cover company directors, whose actions place a pension scheme at risk.  Now that the Act has come into effect, it is clear that there will be greater scrutiny in relation to businesses dealings with their benefit pension schemes.

Two new criminal offences

The Act introduces two new criminal convictions, which both include severe penalties of up to 7 years imprisonment and / or an unlimited fine.  The Act also gives the Pensions Regulator greater civil enforcement powers as they can now deal with transgressions by means of financial penalties of up to £1 million.  As a partial safety net, neither of the two offences will be retrospective and so there is time to seek advice and consider your current way of working in relation to occupational pension schemes.  It is expected that the offences will take effect in Autumn 2021.  The two offences are as follows:

1. Avoidance of Employer Debt

This arises where a person intentionally avoids an employer debt, and has no reasonable excuse for doing so.  This has been drafted very broadly, and so has the potential to catch a broad range of commercial behaviour.  An example of this could be preventing an employer debt from arising by carrying out a corporate rescue.  Therefore it is important to consider your actions when undertaking these types of deals.

2. Risking Accrued Scheme Benefits

This will apply where an act, or failure to act, or a course of conduct, detrimentally affects in a material way the likelihood of accrued scheme benefits being received.  A person will be liable where they did this without a reasonable excuse and they knew, or ought to have known, that the act or course of conduct would have such an effect.

Therefore intent is not necessarily required and the offence can be committed recklessly.  Once again due to the wide drafting , this offence could catch normal commercial behaviour, especially so where intent is not required.  For example, if a business chose to make a significant investment, and then as a result of this their cash flow was impacted, this may mean that this has detrimentally affected the likelihood of accrued scheme benefits being received.

Further guidance is set to be given by the Pensions Regulator, and so it is hoped that there will be further clarity on what a ‘reasonable excuse’ would involve as a defence to these offences.  Until then, businesses will need to be cautious about any actions involving occupational pension schemes.

Who will this affect?

These are very wide provisions, and so can affect individuals beyond those with direct control of decision-making in relation to pension schemes.  It will specifically affect:

  • Trustees and company directors who can be exposed to the risk of prosecution as a result of acts that took place long before any sort of trigger event or insolvency;
  • Professional advisors; and
  • Banks, partners and counterparties to the company in commercial transactions.

How we can help?

Our Business Defence experts at Cartwright King Solicitors have substantial experience and knowledge in advising businesses in relation to their compliance with various legal regulations.

If your organisation requires legal advice to ensure that you do not fall within the remit of the new powers as we progress into 2021, please complete your details and one of our lawyers from the Business Defence team will promptly contact you.

Legal Disclaimer.

All advice is correct at time of publication.