Further clarification is needed on The Pensions Regulator's (TPR) consolidated enforcement policy and prosecution policy proposals to prevent tension between pensions and insolvency regimes, and avoid "erratic" stakeholder behaviour, according to Cardano.

In its response to TPR’s enforcement policy and prosecution policy consultation, the firm explained that whilst the policy provides helpful details on the routes to enforcement action, there were some areas that needed additional clarity.

In particular, it noted that, although the policy has provided some guidance and case examples of how enforcement powers may overlap, it does not address the examples of where powers may overlap with those of other institutions or regulatory authorities.

“For example,” Cardano explained, “given that TPR powers are often used against the backdrop of insolvency proceedings, when debts have crystallised and, therefore, damage is clear, this can cause tensions between the respective pensions and insolvency regimes; in the latter, directors and office holders have responsibilities to the general body of creditors, whereas TPR’s powers are solely for the benefit of the scheme creditor or Pension Protection Fund (PPF)."

The company stressed the importance of this issue, explaining that whilst recoveries by insolvency office holders benefit the company’s estate and its general body of creditors, successful claims by TPR benefit only the scheme.

It also warned that which of TPR and the insolvency office holder brings proceedings first is capable of making "a significant difference", as the first claimant could bankrupt directors or exhaust insurance claims, leaving nothing for subsequent claims.

“This could lead to a conflict of jurisdictions and disadvantage either the scheme or the general creditors of the employer," Cardano argued, suggesting that it would helpful if TPR amended the policy to commit to cooperating with insolvency office holders in such cases.

Alongside this, the firm suggested that it would be "reassuring" to have a committed policy of transparency as to how any conflict of interest with the PPF will be managed, pointing out that the lifeboat will often have "significant influence" as a dominant creditor on the management of the employer's insolvent estate.

Regulatory and criminal proceedings were raised as another area that could benefit from further clarification, as Cardano warned that the policy does little to draw a line between pursuing a regulatory powers case against a target and pursuing criminal powers.

"While a number of factors are provided within the draft prosecution policy that might indicate a more likely focus on the potential use of criminal powers, these factors appear to also be relevant for the use of regulatory and penalty powers," it stated.

"This may represent an example of 'strategic ambiguity' from a regulatory perspective or alternatively possibly reflect the lack of practical cases where this has needed to be considered, given the relatively recent implementation of the Pensions Act 2021."

Although the firm acknowledged that this may represent an example of 'strategic ambiguity', it clarified that the consequence of this ambiguity could be "significant", leading to "erratic stakeholder behaviour" and, potentially, market paralysis as parties remain unsure of the implications of their actions.

More broadly, Cardano suggested that it would be helpful to include a “clear definition” of harm, as well as more information as to who / which TPR teams will be charged with enforcement activity.

Similar calls for further clarification have also been made by the Society of Pension Professionals (SPP), which suggested that, as well as a number of technical clarifications, it would be helpful to understand how TPR will ensure a fair and consistent approach is taken when deciding which cases to take action on, in light of the connection with TPR's strategic priorities.

More broadly, the SPP noted that non-compliance with TPR guidance has been listed as one of the factors that may indicate TPR is more likely to focus its investigation on the potential use of its criminal powers, arguing that this is "completely inappropriate".

"Given that the guidance is not legally binding on trustees and employers and TPR’s website states that there is no penalty for failing to comply with codes of practice, we consider that it is completely inappropriate for non-compliance with TPR guidance to be a factor in determining whether TPR should use its criminal powers," it stated.

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