The Pension Schemes Act 2021 entered into force on 1 October 2021, bringing with it numerous new powers and tools for the Pensions Regulator (TPR) to secure compliance from trustees, employers and others connected with pension schemes with legislative requirements. These include two new criminal offences, a new civil penalty and increased investigatory powers with changes to other aspects of the moral hazard framework, including changes to the notifiable events regime, still awaited (see our recent blog on this here). One of the key changes brought about by the PSA 2021 is to the contribution notice (CN) regime, which has seen the introduction of two new grounds on which a CN can be issued.

Of course, the expansion of the moral hazard regime has generated much interest and discussion in the industry, but the question everyone wants to know is how this is going to be applied in practice. Whilst it is too early to say definitively what TPR's approach to these new and strengthened powers is going to be, some of its recent activity has perhaps given an indication of what we are likely to see going forward – in particular, that it is not going to shy away from its new enforcement abilities. We take a look at this recent activity below.

What are the new grounds?

By way of reminder, the two new grounds for issuing of a CN by TPR are as follows:

  • The employer resources test – where there has been an act (which includes a failure to act) which would have materially reduced the value of the employer's resources, relative to the scheme's estimated section 75 debt.
  • The employer insolvency test – where there has been an act (which includes a failure to act), immediately before that act the scheme was in deficit and if a section 75 debt had fallen due, the act would have materially reduced the amount that could have been recovered from the employer in the event of its insolvency.

Alongside the introduction of these new grounds, a new factor was also added to the 'reasonableness' test, to which TPR must have regard when deciding whether or not it is reasonable to issue a CN. TPR may now consider the effect of the act or failure to act on the value of the scheme's assets or liabilities, or those of a transferee scheme where this is relevant.

When the introduction of these powers was being considered, there was undoubtedly concern in the industry about the lack of certainty around how and when these new CN powers, as well as the other new powers reinforcing the moral hazard regime, would be utilised by TPR. In particular, there was concern that this may discourage standard corporate activity. Statements from TPR indicated that normal commercial activities were not going to be targeted but, in reality, this could only become known once practice around the use of the new powers developed. Whilst this practice is still developing, there are certainly early indications that TPR is going to continue to take a strong approach in enforcing the moral hazard regime.

Recent examples of TPR's enforcement activity

TPR recently issued a CN for a sum of over £3 million to two individuals, A and R Shah, in respect of the Meghraj Group Pension Scheme (MGPS).

The MGPS is a UK defined benefit pension scheme which is currently in the Pension Protection Fund. The sponsoring employer of the MGPS was Meghraj Financial Services Limited (MFSL), which entered liquidation in 2014. For many years, it had been the sole legal owner of Meghraj Properties Limited (MPL), which itself owned shares in an Indian joint venture company (the "JV Company"). MPL paid significant proportions of the proceeds of the sale of the JV Company to a Jersey registered company which was the nominee for R Shah. The Shahs had entered into a number of profit sharing agreements, including an agreement entered into in 2012 which provided that MFSL would have no further entitlement to, or claim in respect of, any sale proceeds of the JV Company.

TPR's view was that this agreement resulted in a valuable asset being removed from MFSL, to the detriment of its ability to meet its liabilities to the scheme. This failed the 'material detriment' test, a key tenet of TPR's moral hazard regime. This resulted in TPR issuing a warning notice in 2018 to the Shahs, which they contested. TPR's determination panel then met in 2020 where they ruled that the agreements according to which profits had been distributed were not legally binding. Further, in considering whether the issue of a CN would meet the newly introduced reasonableness test, TPR concluded that A Shah had for years failed to provide the scheme's trustee with full information about the value of the JV Company. TPR also found that, while R Shah had limited involvement with the pension scheme, he knew that the scheme could obtain some of the proceeds generated by the sale of the JV Company and therefore should have taken legal advice before taking any action to put these out of the scheme's reach. TPR therefore determined that a CN would be issued to both Shahs on a joint basis, for a total of £3,688,108.

Another recent incident which perhaps highlights TPR's tougher stance is the £133 million warning notice issued to ITV (and four other related companies) seeking CNs against them. This was in relation to a failure to provide sufficient support to the Box Clever pension scheme, given the role that ITV (formerly Granada) played in the formation and demise of the TV rental business which went into administration in 2003. A legal challenge emanated from this, lasting almost a decade, and TPR sought to impose a financial support direction on ITV in 2018. The Upper Tribunal confirmed at this time that TPR was entitled to take this action, and questions arose around the level of support ITV should be expected to give to the scheme.

TPR gave ITV a 6-month deadline in March 2020 to fund the scheme, which at the time had a deficit in the region of £115 million. ITV offered to pay £31 million in August 2020, but TPR rejected this offer as insufficient. With the 6-month deadline having passed, TPR then issued the aforementioned warning notice in May 2022. ITV has said it will continue to engage with TPR with the aim of resolving the issue, but, given the uncertainty around various factors such as quantum and form of financial support to be given, says it would 'strongly contest any attempt to impose liability in an amount the directors consider unreasonable'.

What can we learn from this?

It is too early to say exactly what TPR's approach to its new powers is going to be or to determine that a precedent has been set. There are also various aspects of the new regime, introduced by the PSA 2021 that have yet to be put to the test in practice, such as the new criminal offences. However, these recent examples do provide a general indication that TPR is taking seriously its new powers, and the stronger role it has been given in protecting pension scheme members' benefits from harm. It certainly appears that it will not hesitate, where it considers it necessary, to take action and impose significant financial penalties to ensure this is done. It is accordingly more important than ever for trustees, employers and all those involved with pension schemes to ensure they are up to speed on their obligations under legislation, in particular the changes brought in by the PSA 2021 (for further detail on this, see our blog).

If you wish to discuss anything raised in this blog, please contact a member of the pensions team.


Juliet Bayne


Jennifer Crawford

Senior Associate