Information gathering powers – the risk of non-compliance

Caroline Overton

For those of us working in the occupational pensions arena, Brighton Magistrates’ Court is not where we typically expect to see a pensions dispute play out. However, recently we saw rich coverage of Dominic Chappell’s four days in that very establishment, culminating in a criminal conviction for failing to provide information to the Pensions Regulator, without reasonable excuse, in response to a number of section 72 information requests. As the media was keen to point out, a criminal conviction on these grounds can result in an unlimited fine. However, before anyone loses sleep about their personal risk of ending up before the bench, here’s a quick overview of what these powers mean, and the limited circumstances in which they may be exercised.

Firstly, being on the receiving end of a section 72 request from the Regulator does not mean that the Regulator suspects you of any wrongdoing. It simply means the Regulator believes that you may have information that would be useful to it in the exercise of its functions. The section 72 power is broad, and enables the Regulator to compel any person who it believes is likely to hold relevant information to provide that information. The Regulator considers this power to be a key regulatory tool for complying with its statutory objectives, which include protecting members’ benefits and promoting the good administration of work-based pension schemes. Since 2012, the Regulator has made approximately 600 section 72 requests – predominantly relating to investigations into suspected pension scams, avoidance and poor scheme governance.

Secondly, this is only the fifth criminal conviction secured by the Regulator against individuals or organisations for failing to comply with a section 72 notice. Enforcement is certainly becoming a stronger theme with the Regulator, consuming just 16% of its resources in 2015 but rising to over 30% by the end of 2017. However, the vast majority of enforcement activity is within the civil, rather than criminal, arena covering moral hazard powers and failures by trustees and employers to comply with requirements in relation to scheme returns and auto-enrolment.

Thirdly, the threat of prosecution and an unlimited fine is certainly daunting, but the Regulator stresses in its prosecution policy that it would not prosecute lightly, and must be satisfied that both an evidential test and a public interest test are met before proceeding. And in terms of what ‘unlimited’ means, this will fully depend on the facts and the balance between punishing an offender and deterring others. Before changes to magistrates’ sentencing powers were introduced in 2015, a fine of this nature was capped at £5,000. The fines awarded (including costs) on convictions in 2017 ranged from around £5,000 to £12,000, so we are seeing penalties starting to rise above the previous cap.

And finally, on a more reassuring note, any failure to comply with a section 72 notice would always be considered by the Regulator in a risk-based manner on its own particular facts. The statutory bar for prosecution requires any failure to comply to be ‘without reasonable excuse’. While the Regulator may put a tight timeline on initial responses, it is amenable to delays where there are reasonable grounds – for example, where documents are in storage, not easily accessible, or where the recipient has genuine concerns about legal privilege or similar issues. As such, the key point for anyone on the receiving end of a section 72 notice is to keep up a dialogue with the Regulator while seeking to comply with the request.

So, as Nick Ross used to say, “Don’t have nightmares, do sleep well.”

Caroline Overton is a Senior Associate at Allen & Overy LLP.

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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