“All the better to eat you with, my dear.” And so our precautionary tale begins.

Chapter 1 – Lost in the woods

Once upon a time the UK Pensions Act 2004 (the Act) was introduced and it gave a variety of enforcement powers to the newly formed Pensions Regulator (TPR). For a time at least, employers and trustees alike were wary of the stick attached to non-compliance, wondering how and when TPR would strike. As the years passed, however, some began to believe that, possibly due to a lack of resources, TPR was unlikely to investigate or penalise many examples of bad behaviour. The threat of being dragged down to Brighton to explain oneself no longer led to the immediate opening of a cheque book – the assumption being that TPR would seek to “educate” the miscreant rather than take enforcement action.

As with all good fairy tales, the baddies could not prosper forever and eventually, something changed. TPR began to fight back.

Chapter 2 – Who’s afraid?

In April 2016, TPR made clear its plans to raise its profile. It began to issue fines to trustees who failed to file their scheme returns on time with a view to clamping down on non-compliance to offer greater protection for members. Following the BHS pension scheme debacle, in respect of which TPR was heavily criticised in the press, it is now appealing for extra powers to promote greater scrutiny to protect members of pension schemes. And earlier this month, to really scare everyone, it issued two press releases on consecutive days about the first criminal convictions it had obtained for failures to comply with the terms of notices requiring information/documentation to be provided to TPR which was relevant in the exercise of its functions.

TPR has the power, under section 72 of the Act, to issue a written notice requiring a trustee, manager, employer, professional adviser or any other person who holds, or is likely to hold, information relevant to the exercise of its functions to produce a document or provide information within a specified time frame. It is a criminal offence under section 77 of the Act to fail to comply with such a notice without reasonable excuse. There is an exception to the requirement to produce documents or information in relation to what are known under section 311 of the Act as “protected items”, essentially material to which legal privilege attaches.

Anecdotally, TPR seems to have been upping the ante in terms of regulatory investigations in recent months and is using its section 72 powers more freely in circumstances where voluntary co-operation would previously have been sought. This month TPR announced that it has now prosecuted a firm of solicitors (and its managing partner) and the head of a charity for failures to comply with section 72 notices. These announcements send a clear message to not only potential targets of regulatory action but also to professional advisers and all other potential recipients of section 72 notices that the obligations under the notices are to be taken seriously and dealt with accordingly.

Chapter 3 – Beware! It bites! 

The first prosecution was against a firm of solicitors and its managing partner, who pleaded guilty to failing to provide the requested documents without a reasonable excuse. TPR was investigating a pension scam and had requested documents from the solicitor even though neither the solicitor nor the firm were connected with the investigation, nor had either done anything wrong. The firm provided a variety of excuses in relation to the delay in providing documents, which were eventually only obtained 9 months later after the issue of a search warrant. The court noted a lack of corporate governance at the firm and TPR made it clear that disorganisation was not an excuse not to comply and would not be tolerated. The firm was ordered to pay a £2,700 fine (plus £2,500 costs) and the managing partner was fined £4,000 (plus £7,500 costs) and both were ordered to pay a victim surcharge of £120 each.

This case serves as a stark reminder to professional advisers that, even when they aren’t under investigation themselves, they may still be requested to assist TPR and should comply without delay. Not only can failure to provide such information result in an unlimited fine, those involved can suffer serious reputational damage from being successfully prosecuted for non-compliance with the law. In addition, advisers could also face further action from their professional body. It is hard to think of a reason why an adviser would want to risk their whole livelihood in this way but equally neither negligence nor incompetence will serve as an excuse.

The second prosecution was against Mr M, the Chief Executive of a Hampshire-based charity for the disabled. Mr M, a former trustee of the pension fund, refused to comply with a request for documents for over 18 months. He claimed that, as they contained information about third parties, it would be a breach of French privacy law to hand over certain documents. He also refused to hand over bank statements as he (wrongly) believed they were covered by legal privilege and subsequently refused to provide them on the basis that they would incriminate him. As such, Mr M pleaded not guilty to an offence. Hearing evidence on French law, the court found that Mr M had no reasonable excuse not to provide TPR with the documents and that they were not covered by either French privacy law or legal privilege. Similarly, a failure to provide documents on the grounds of self-incrimination was also not an excuse. Mr M was ordered to pay a £2,500 fine (plus £4,000 costs and a £120 victim surcharge) and it has been reported that his conviction has been referred to the Charity Commission.

In a press release on Friday, TPR confirmed that intervening more frequently and acting quicker are amongst its goals for the next three years – so we may anticipate further prosecutions of this type

Chapter 4 – Seeking a happy ending

For anyone seeking to come up with a “reasonable excuse” for a failure to comply with a section 72 notice, these cases highlight the sort of excuses that will not suffice. To the extent that there is any doubt about the scope of the notice, including whether or not a document falls within the categories requested or whether the privilege exception applies, then the safest course of action would surely be to apply to the court to get that clarified (as happened in Bloom v TPR) rather than risk prosecution and the further damage that that would incur. After all, we all want to live happily ever after.