Directors and trustees have been urged to take action to avoid being made criminally liable under the extended powers for The Pensions Regulator (TPR) outlined in the Pensions Schemes Bill.

LCP has warned that the powers could have “far reaching implications” for corporate Britain, stating that the criminal offences and civil penalties laid out in the act will have a “much wider scope” and cover a broader range of corporate activity than was originally outlined in the white paper.

Considering this, the firm emphasised that the legislation is not purely a matter for pensions managers or trustees.

Instead, it stressed that the extended powers should be "on the radar" of all key decision makers to avoid potential fines or jail time as a result of financially material business decisions they are party to.

In particular, the firm has highlighted concerns around the new 'conduct risking accrued benefits' offence, stating that this is “potentially very wide reaching”, and could see those undertaking what had previously been normal business activity caught in a plain reading of the law.

Furthermore, it stressed that this offence brings the risk of a £1m personal fine or custodial sentence for trustees, if it were judged that their action, or inaction, reduced the likelihood of members receiving their benefits.

The firm also warned that the act will broaden TPR contribution notice powers “substantially”, introducing two new tests which are more objective in nature.

LCP argued that previously normal business activity, such as material restructuring or dividend decisions, could breach these new tests.

This will mean that a “much wider range” of corporate activity will need to demonstrate a clear audit trail of the process of reasonable decision making, as well as supporting analysis to show how the pension scheme has been considered and, where needed, provided with extra cash or guarantees.

LCP Principal, Laura Amin, stated: “Directors and others will need to take action to ensure they avoid falling foul of the new TPR powers around contribution notices.

“Many will also be concerned about the threat of jail or a fine if they are unintentionally involved in something is judged to have weakened a company’s support for the pension scheme.

“Responding to these new rules appropriately will be particularly challenging for those businesses who are struggling to recover from Covid-19, or are badly hit by Brexit.

“It’s clear that there are lower thresholds for the criminal offences than previously proposed and it means that a wider scope of people could be liable for actions taken unwittingly.

“Alongside this there is the need for extra governance and documentation to demonstrate that all parties have acted reasonably vis a vis the pension scheme in making material business decisions.

“The expectations of shareholders and lenders may also need to be managed as these stakeholders may have to prioritise pensions more than they have done so in the past.

She added: “We await the regulator’s guidance with interest, but it seems to us that trustees will have to have increasing involvement in discussions around some routine business activities.

“Under the new act, corporates cannot afford to see pensions as a separate issue and it will be vital for them to be able to show how the pension scheme has been considered as part of their decision-making processes.”

A spokesperson for TPR, said: “The Pension Schemes Bill contains new powers to further protect pension savers, including against those who intentionally or recklessly put defined benefit savers’ benefits at risk.

"These measures should act as a powerful deterrent against this kind of conduct. Where it does occur, we will have additional powers to respond.

“We will work closely with all stakeholders, including through consultation, to produce the codes of practice and guidance to help inform and guide industry to ensure these measures are introduced in the most effective way.

“We are a risk-based and proportionate regulator and this approach will continue if the bill becomes law. Our work is driven and directed by the pursuit of our statutory objectives and we use our powers where appropriate and reasonable to do so.”

A Department for Work and Pensions (DWP) spokesperson, added: “The government is committed to increasing protections for workers’ retirement savings, and the Pension Schemes Bill will do just that.

“There must be no hiding place for those intent on jeopardising the retirement prospects of hard-working people.”

The warning from LCP follows the government confirmation that the additional powers will not be applied retrospectively, although recent industry research also revealed that uncertainty around the impact of the new powers on remains in the industry.

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