UK pension fund trustees have raised concerns over how Section 58B of the Pensions Act affects their ability to make investment decisions in line with the government’s growth agenda.
According to The Pensions Regulator (TPR), the criminal offences policy for Sections 58A and 58B of the Pensions Act 2004 relate to the investigation and prosecution of the new criminal offences of “avoidance of employer debt” or “conduct risking accrued scheme benefits”.
Earlier in the month at the Pensions and Lifetime Savings Association (PLSA) Investment Conference in Edinburgh, the conversation was all about UK growth and the fact that defined benefit (DB) pension schemes do not invest enough in UK productive assets.
Conference attendees heard from the pensions minister stressing the government’s commitment to allow surplus extraction to support the UK growth, with a consultation response on the matter due to be published later this spring.
Meanwhile, Joanne Gibson, the head of the pensions investment review at His Majesty’s Treasury, highlighted the fact that UK pension funds are not investing in the UK, pointing out that earlier this month a UK fintech firm received investment from a Canadian pension fund.
However, while the conference speakers presented the benefits of investing in productive assets, one question seemed to feature in the majority of the sessions: “What about Section 58B of The Pensions Act?”
One trustee pointed out that regulation prevents pension fund trustees from taking investment risk.
“Section 58 of the Pensions Act 2004 criminalises with seven years in jail anyone – trustee or investment manager – who does any act or engages in the conduct or fails in any act of conduct that will result in having material detriment on a pension,” he said.
He highlighted that while consultants and law firms say: “Don’t worry about it, it will never be used”, trustees are still concerned by this clause.
What is Section 58B of the UK Pensions Act and should trustees be concerned?
According to TPR’s criminal offences policy, the offences in section 58B are “potentially very broad in scope”. The regulator added that “the vast majority of people do not need to be concerned”.
It said: “We don’t intend to prosecute behaviour which we consider to be ordinary commercial activity. We will investigate and prosecute the most serious examples of intentional or reckless conduct.”
“We don’t intend to prosecute behaviour which we consider to be ordinary commercial activity”
The Pensions Regulator
Andrew Block, pensions partner at Mayer Brown, explained the section was inserted into the Pensions Act 1995 by the Pension Schemes Act 2021 following Philip Green’s sale of BHS to Dominic Chaplle and its subsequent collapse.
The Work and Pensions Parliamentary Committee held an inquiry and recommended increased powers for TPR – Section 58B is one of these increased powers.
It makes any “conduct risking accrued scheme benefits” a criminal offence. This includes:
- a person does an act or engages in a course of conduct that detrimentally affects in a material way the likelihood of accrued scheme benefits being received;
- the person knew or ought to have known that the act or course of conduct would have that effect; and
- the person did not have a reasonable excuse for doing the act or engaging in the course of conduct.
A spokesperson for TPR said the Section acts as a “deterrent” against “the most egregious corporate avoidance behaviour” and it gives the regulator more options to “punish wrongdoers”.
“Investment strategies and decisions made in the best interests of savers, including investment in productive growth assets, are highly unlikely to be captured by this offence,” the spokesperson added.
The regulator’s guidance is “clear that where there has been open and transparent engagement with us, and consideration is given, or steps taken, to protect savers benefits, we would not have concerns, even if the eventual impact is detrimental to the scheme,” the spokesperson continued.
The spokesperson explained that the TPR’s assessment would be based on what was reasonable to have been known, and make reasonable enquiries about, at the relevant time and not through the lens of hindsight.
To be on the safe side, Mayer Brown’s Block advises trustees and other pensions professionals to “consider the interests of the pension scheme before entering into any commercial transaction, document that you have done this, and if the position of the pension scheme would be weakened by the transaction, put in place appropriate mitigation.”
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