The government has been consulting on proposed regulations on new powers for the Pensions Regulator (TPR) under the Pension Schemes Act 2021 (the "Act") relating to the ‘employer resources’ test for a contribution notice, and information-gathering powers. Our recent blog sets out an update on the implementation of the Act.

The consultation, which ran from March 18 to April 29 2021, sought views on two draft regulations. You can find the government's response, which was published on 29 June 2021, in full here.

The Employer Resources Test

The draft Pensions Regulator (Employer Resources Test) Regulations 2021 set out how an employer’s resources are to be determined and valued for the purposes of the new employer resources test. This test is met where TPR is of the opinion that an act (or failure to act) has reduced the value of the resources of the employer, and that that reduction was material relative to the estimated section 75 debt. Having considered various options, the government proposed that the resources of the employer for this purpose should be the normalised profits of the employer before tax (removing non-recurring or exceptional items). TPR would have the power to determine whether an item is to be treated as non-recurring or exceptional, the value of any such items, and the effect of the act or omission on the resources of the employer.

Meeting the ‘employer resources test’ will not automatically mean that the test for a contribution notice is met; TPR must be of the opinion that it would be reasonable to impose liability.

The government response indicates that views on these aspects proposed regulations were mixed. About half of the responses are noted as suggesting that EBITDA (Earnings Before Interest Tax Depreciation and Amortization) would be preferred over Profit Before Tax (PBT) as a measure for assessing the resources of an employer. Acknowledging this, the response notes that the preferred option (PBT) “is not perfect however, and neither are the alternatives that have been considered”. Using PBT “would be something akin to the employer’s ability to support the scheme, which is examined as part of assessing employer covenant”.

Information gathering powers

The draft Pensions Regulator (Information Gathering Powers and Modification) Regulations 2021 set out the information to be contained in a notice issued by TPR for someone to attend an interview; how new inspection powers apply for multi-employer schemes; and the fixed or escalating penalty rates for non-compliance with information-gathering requests. It was proposed that the fixed penalty be set at £400; for escalating penalty notices the daily rate for continuing non-compliance would be £200 for an individual, and in all other cases (for example, for a company) from £500 (day 1) to £10,000 (from day 20 onwards) thus keeping the levels consistent with the automatic enrolment regime. In our experience these fines can build up very quickly into significant penalties, even where a breach is only for a short period.

The government response indicates that many respondents chose not to comment on the questions relating to these aspects. However, of the few that did, it notes that most respondents were supportive of the proposals.

It is expected that the regulations will come into force later this year and it will be interesting to see how TPR uses its strengthened powers in line with its approach of approach of being clearer, quicker and tougher.

Further consultation on planned changes to the notifiable events framework including draft regulations on the duty to give notices and statements to TPR in respect of certain events expected later this year, for commencement as soon as practical thereafter.

If you would like to discuss anything raised in this blog, please get in touch with a member of the pensions team, or your usual contact at Brodies.


Jennifer Crawford

Senior Associate