In recent years, The Pensions Regulator (“TPR”) has been steadfast in enforcing compliance among pension scheme trustees and employers, often issuing penalties for non-compliance. However, recent cases indicate that with a valid reason, it is possible to contest and even overturn penalties. Here, we examine three noteworthy tribunal decisions that shed light on the courts’ willingness to scrutinise TPR’s rigid application of penalties and underscores the importance of fairness and proportionality in regulatory enforcement. 

Caldwell v TPR: Flexibility in Exceptional Circumstances 

Background

In Caldwell (Trustee of the Smith & Wallace & Co 1988 Pension Plan) v The Pensions Regulator [2024], TPR issued a penalty to Caldwell for failing to prepare a chair’s statement by the required deadline (within seven months of the end of each scheme year). This annual governance statement is mandatory for defined contribution pension schemes, and failure to submit it incurs an automatic fine between £500 and £2,000. 

Trustee’s Appeal

Caldwell acknowledged the failure but argued that TPR had not informed him about the requirement and was uncooperative regarding the penalty notice. TPR maintained that the penalty was mandatory, following a strict reading of the word “must” in regulation 28(2) of the Occupational Pension Schemes (Charges and Governance) Regulations 2015, and that the reason for any breach, however compelling, was irrelevant.  

Tribunal’s Decision

• The tribunal ruled that TPR should consider exceptional circumstances at the penalty issuance stage, not just during the review. 
• Despite Caldwell’s lack of compelling mitigating circumstances, Judge Snelson criticised TPR’s rigid approach, suggesting Parliament likely intended for some discretion in exceptional cases. 
• The tribunal found TPR’s interpretation “unreasonably restrictive” and “somewhat absurd”, highlighting TPR’s “puzzling” lack of communication about the requirement. 

TPR’s lack of discretion in relation to issuing fines for chair’s statement failures has been a frustration for trustees since the legislation was introduced. The Department for Work and Pensions is considering the continued feasibility of the chair’s statement as part of the Value for Money reforms.

Philip Freeman Mobile Welders Ltd v TPR: Overturning Penalty Notices 

Background

In Philip Freeman Mobile Welders Ltd v The Pensions Regulator [2024], TPR issued fixed and escalating penalty notices to the employer for failing to comply with auto-enrolment duties. The employer claimed not to have received these notices. 

Employer’s Appeal 

The employer argued that it had not received the notices due to postal issues and asked TPR to review the penalties. TPR contended that the review application was out of time and inappropriate. 

Tribunal’s Decision

• The tribunal accepted that the employer successfully rebutted the presumption that the notices were delivered, citing detailed evidence of postal issues and misdelivered mail. 
• The tribunal concluded that TPR’s system, although generally reliable, was not infallible, and the employer provided sufficient proof of non-receipt. 
• Due to these exceptional circumstances, the tribunal directed that the notices be set aside, emphasising the need for TPR to ensure proper delivery of notices. 

Gianni’s Glasgow Ltd v TPR: Proportionality in Penalties 

Background

In Gianni’s Glasgow Ltd v The Pensions Regulator [2024], TPR issued an escalating penalty notice (“EPN”) of £14,000 for unpaid contributions to an employer following a breakdown in pension arrangements when the employer changed accountants. 

Employer’s Appeal

The employer contended that it was  unaware of the penalties until it received a personal email from TPR well after the penalty started to accrue. It acted promptly once aware, but TPR rejected the initial review request as out of time and confirmed the EPN after a second review. 

Tribunal’s Decision

• The tribunal found TPR’s review approach flawed, as it failed to consider the employer’s prompt remedial actions and the lack of intent. 
• The tribunal ruled the EPN “wholly disproportionate and oppressive”, especially given its magnitude relative to the employer’s annual pension contributions and the absence of harm to employees. 
• The tribunal revoked the EPN, emphasising that penalties must be fair, reasonable, and proportionate. 

Conclusion 

These cases demonstrate that with a credible and detailed justification for a failure to comply with regulatory requirements and/procedural timetables, trustees and employers can successfully challenge TPR’s penalties. The tribunals have shown a willingness to push back against TPR’s rigid enforcement, highlighting the importance of fairness and proportionality in regulatory compliance. This evolving legal landscape suggests that TPR must balance strict enforcement with consideration of individual circumstances to maintain just and reasonable regulatory practices. 

In light of these decisions, it is clear that maintaining meticulous records, ensuring effective communication channels, and promptly addressing any compliance issues are vital for pension scheme trustees and employers. Moreover, when faced with penalties, acting promptly and presenting a well-documented, reasonable justification for any non- compliance could make a significant difference in contesting penalties. 

This article was authored by Zoya Alam