The Pensions Regulator ("TPR") has a number of powers available to it when considering whether regulatory intervention is required. Although TPR's regulatory approach is to educate and enable trustees to take steps to remedy issues where they are identified, it is clear from the latest regulatory intervention report in relation to the Merchant Navy Ratings Pension Fund (the "MNRPF") that TPR is prepared to take regulatory action where trustee governance does not meet required standards and "trustees are not able or willing to remedy the governance issues". The subsequently published Determination Notice in relation to the Audax Pension Trust ("Audax") also confirmed that where 'serious' governance failings are found and action is required, TPR will exercise their powers to ban trustees from acting and appoint new independent trustees.
TPR's regulatory powers
Although some regulatory powers can be exercised by TPR staff, most powers are 'reserved' and can only be exercised by TPR's Determinations Panel, an independent and impartial committee operating separately from other parts of the organisation. These 'reserved' powers include anti-avoidance powers, the power to wind up a scheme and the power to appoint or prohibit pension scheme trustees.
Standard Procedure
TPR's case team will carry out initial investigations, before issuing a Warning Notice to the 'Directly Affected Parties' if they believe that it may be appropriate for one or more of TPR's functions to be exercised. Following the consideration of any representations made in response to the Warning Notice, the case team will refer the case to the Determinations Panel, if appropriate.
Once a matter is referred to the Determinations Panel, the panel will make a determination after reviewing all evidence presented and issue a Determination Notice, setting out whether or not they will exercise their 'reserved' powers.
Special Procedure
Where the case team believes that there is, or is likely to be, an immediate risk to the interests of the members or the assets of a scheme, they will use the special procedure to refer the matter directly to the Determinations Panel. In such a case, the Determinations Panel may determine to exercise their powers without giving advanced notice but must review this decision as soon as possible after the determination has been made.
The MNRPF case
TPR opened an investigation into the trustee's governance of the MNRPF after becoming aware of the findings of two separate independent reports, commissioned by the trustee board, which highlighted numerous governance failures and ongoing behavioural issues within the trustee board.
TPR issued a Warning Notice in May 2019, setting out their recommendation to appoint an independent trustee with exclusive powers. The Notice also highlighted key governance issues, including failures to properly consider conflicts of interest, general poor behaviour, and a breach of the trustee board's duty of confidence, all of which threatened the overall strategic running of the MNRPF and had resulted in additional costs of over £1 million.
In the weeks leading up to the Determinations Panel hearing, significant structural changes to the trustee board occurred, which included an almost entire change of personnel. Based on these changes, it was determined that it was no longer reasonable to appoint an independent trustee with exclusive powers.
Although the Determinations Panel declined to exercise their powers in this case, TPR consider their intervention to have resulted in material and effective changes and improvements to the structure and governance of MNRPF.
The Audax case
On 24 December 2020 TPR published a Determination Notice in relation to The Audax Pension Trust ("Audax"). The notice showed that the Determinations Panel had considered several governance problems within Audax, highlighted in the Warning Notice which had been issued to Audax, including a number of serious governance failings.
The Panel determined that it was appropriate to exercise their powers in this case to prohibit the corporate trustee and one of Audax's directors from acting as pension scheme trustees, as they were satisfied that neither were 'fit and proper' to act as trustees and that they lacked the necessary competence and capability. The Panel also appointed a new independent trustee to the scheme.
Unlike the MNRPF case, the exercise of TPR's powers was considered necessary to protect savers within Audax and ensure trustees are 'stopped from failing other savers' where they do not meet statutory requirements and the governance standards expected by TPR.
Comment
These cases highlight the importance of understanding and maintaining the standards expected by TPR in relation to scheme governance. Trustees should ensure that processes are in place to regularly assess whether these standards are being met and where governance issues are apparent, action should be taken to improve standards and ensure TPR intervention will not be necessary.
If you would like to discuss anything raised in this blog, please get in touch with your usual contact at Brodies.
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