TPR publishes its Settlement Policy

On 25 March 2021, The Pensions Regulator (TPR) published its policy setting out the approach it takes when negotiating and concluding settlements for regulatory or civil enforcement action (“Settlement Policy”). Alice Wilmot, Director at Lincoln Pensions, and previous secondee to TPR’s Enforcement team, sets out her thoughts below.

The Settlement Policy helpfully sets out the general principles that TPR takes into account when considering whether settlement is appropriate in the context of potential enforcement action, possible types of settlement and the settlement process it follows. In this context, TPR has defined settlement as “where the target of potential or ongoing enforcement action offers something in return for The Pensions Regulator (TPR) agreeing not to pursue or continue the action.”

TPR’s decision to publish the Settlement Policy is consistent with its “clearer, quicker, tougher” mantra – aligning particularly well with the “clearer” and “quicker” elements – and coincides with a flurry of regulatory policy activity following the introduction of the Pension Schemes Act 2021.

It is clear from case such as Box Clever that regulatory enforcement action takes a long time – i.e. several years – to reach a conclusion through the court. In that light, pursuing settlement can be an appropriate and proportionate course of action for TPR, although not necessarily one that always happens at the start of proceedings. By way of a recent example, the Silent Night case (see s89 report here) began in 2011 and involved two Contribution Notice warning notices and a judicial review application, before finally reaching settlement in February 2021 before a decision had been reached by TPR’s Determinations Panel. Consistent with the Settlement Policy, this case study highlights TPR’s willingness to run enforcement action in parallel with settlement discussions and to reach settlement at any stage of the proceedings.

It is unsurprising that TPR undertakes a form of cost / benefit analysis, with the time taken (and associated cost) to reach an outcome a major driver for considering settlement (the “quicker” in “clearer, quicker, tougher”). A bird in the hand is often worth two (or even more!) in the bush. Whilst TPR considers a range of factors, ultimately, as one would expect, the decision to Settle or otherwise is at TPR’s sole discretion, based on the specific facts of the case.

Whilst enforcement action is aimed at repairing harm in the context of a specific defined benefit pension scheme, TPR is also cognisant of its deterrent value. As such, any settlement reached could be made public as a function of TPR’s s89 regulatory intervention report power. The Settlement Policy makes clear that TPR will not fetter this power in reaching a settlement. As such, if potential targets wish to avoid pandora’s box being opened for the world to see the best approach is to reach agreement before TPR’s formal case process begins. It is not uncommon for TPR to be explicit in the type of mitigation it would accept to cease an investigation – and, if an acceptable arrangement can be reached that does not require a formal settlement with TPR, the risk of negative PR for the target is significantly reduced.

The Settlement Policy is consistent with Lincoln’s understanding of TPR’s approach based on our significant experience of working on regulatory enforcement cases, most commonly in the context of TPR’s anti-avoidance powers, and through secondments to TPR’s Enforcement team. We believe it is very helpful to have the process clearly recorded and publicly accessible, particularly for those who could find themselves the target of potential regulatory action, such as DB pension scheme sponsors, or potential Directly Affected Parties, such as trustees.

Speak to Alice Wilmot to find out more.

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