With little sign of any "green shoots" of recovery in the UK economy as yet, it is not surprising that both the Regulator and the Pension Protection Fund (PPF) have something to say about it. In this issue of Pensions Bulletin we consider the latest developments, including concerns regarding trust busting/pensions liberation, a reminder about whistle-blowing duties and perhaps signs of change at the PPF with the appointment of a new Chief Executive.

Statement issued by the Regulator

In a recently issued statement, the Regulator focuses on the risk of unacceptable behaviour associated with pension schemes which is perhaps more likely to occur during these extremely difficult times. The importance of good governance is highlighted and a warning against fraud and dishonesty includes reference to raising the awareness amongst scheme members of the risks of trust-busting/pension liberation activities.

  • Trust busting/pension liberation
    Trust-busting/pension liberation activities are actions taken to transfer funds out of a legitimate registered pension scheme and then release pension savings before retirement by converting them entirely into cash. In pension liberation, the pensions savings transferred out will not actually be transferred into another pension scheme but instead those organising the pension liberation will purport to run a registered pension scheme in order to mislead the original pension scheme to make the transfer– it is, of course, unlawful to do this. Although the prospect of being given an immediate cash sum in place of pension saving may seem attractive if an individual is desperate for money, any pension scheme member targeted by pension liberators will often pay organisers substantial "commission" fees and may be told that deductions are being made to cover tax payable to HMRC, when in fact it is very unlikely that HMRC will receive any money given such transfers are unlawful. The member concerned is, however, highly likely to be contacted by HMRC eventually as all cash released from the pension scheme will be taxable as income and other penalties and charges may also be imposed. The Regulator makes it clear that it will pursue anyone attempting to engage in pension liberation activity and will involve the relevant authorities where criminal activity has occurred.


  • Putting members' benefits at risk
    As well as all-out fraud, the Regulator makes it clear that any activities subjecting members' benefits to an unacceptable degree of risk will not be tolerated. Such actions include not only the very obvious avoidance of an employer debt, but also inappropriate transfers for individuals from underfunded schemes and certain practices associated with transfer incentive initiatives. In the statement, reference is also made to the tools the Regulator has at its disposal to help protect schemes and their members. In addition to the well known anti-avoidance powers, the Regulator can:- impose penalties for breach of legislation; remove and appoint trustees; reverse transactions carried out at under value; and freeze and wind-up pension schemes.


  • Statutory whistle-blowing duties
    Attention is also drawn to the duty of those with statutory whistle-blowing roles to bring such behaviour to the Regulator's attention. In addition to its own focus on identifiable areas of risk, the Regulator also obtains significant information to help fulfil regulatory responsibilities through whistle-blowing reports. The duty to whistle-blow imposes a reporting requirement on certain individuals involved in the running of pension schemes including trustees, managers and persons involved in administering the scheme. Such persons are obliged to report materially significant breaches of the law relating to the administration of pension schemes to the Regulator. The Code of Practice on "Reporting Breaches of the Law" is available on the Regulator's website and provides detailed advice for individuals falling within the scope of the whistle-blowing legislation. Anyone who does have potential whistle-blowing duties is also expected by the Regulator to have an understanding of these duties and to be familiar with the Code of Practice.

    The Pensions Act 2004 provides that the duty to report a breach of the law to the Regulator overrides any duty of confidentiality that the person making the report may have and it is not, therefore, deemed to be a breach of confidentiality if someone decides to report a breach.

    Our advice at this stage would be to ensure that trustees, managers, other staff and employers dealing with pension schemes are fully trained to recognise their reporting duties and are able to recognise potentially reportable events.

New Chief Executive at the PPF

The new Chief Executive of the PPF, Alan Rubenstein, has taken part in a number of interviews with the media, including the Financial Times, since taking over the role. The key topics of interest raised during these interviews are set out below:

  • Counter-cyclical levies
    Mr Rubenstein highlighted that informal discussions are taking place at the PPF to explore the possibility of introducing counter-cyclical levy payments. This would mean that levy payments would be held in check during a recession but that this would be offset by higher premiums (with increases of more than inflation) during times of economic prosperity.


  • Solvency of the PPF itself
    The new Chief Executive did not hesitate to dismiss suggestions that the PPF was close to collapse due to the number of schemes being admitted. Despite a deficit of approximately £500 million, Mr Rubenstein described such suggestions as nonsense.


  • Reducing benefit payments
    Mr Rubenstein does not rule out ultimately reducing benefit payments, but this would only be as a last resort and would only be considered once the levy has been increased to the maximum amount permitted by legislation.

    We will keep you up-to-date with any developments, should formal changes be implemented.

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