Consultation outcome

Chapter 5: Penalties and Impacts

Updated 7 July 2021

This was published under the 2019 to 2022 Johnson Conservative government

Penalties

1. This section sets out our proposals for penalty regimes which will apply where trustees fail to meet the proposed governance, publication and disclosure requirements we have set out.

2. If we place a duty on trustees to inform members, via the annual benefit statement, about the location of the latest Task Force on Climate-related Financial Disclosures (TCFD) report we propose to use the existing penalty regime, as set out in regulation 5 of the Disclosure Regulations^{[footnote 87]}, in instances where trustees have failed to comply with this specific notification requirement. The penalty regime in regulation 5 would also apply to the proposed requirement for trustees to include of a web link in the Annual Report to the location of the published TCFD report.

3. Equally, if we place a duty on trustees to provide The Pensions Regulator (TPR) with the website address of their published TCFD report in the scheme return, the existing penalty regime, as set out in the Pensions Act 1995, section 10^{[footnote 88]} and applied by the Pensions Act 2004, section 64 (duty of trustees or managers to provide scheme return), would apply. The same penalty regime would also apply in relation to our proposal to require trustees also provide the website address of the Statement of Investment Principles (SIP), Implementation Statement and the relevant excerpts of the Chair’s Statement in the annual scheme return.

4. In respect of compliance with the proposed climate governance and TCFD reporting requirements, we propose to impose a separate penalty regime using the powers in new section 41C of the Pensions Act 1995, as provided for by the Pension Schemes Bill 2019 to 2021^{[footnote 89]}. Using these powers, we would propose to give TPR the power to issue compliance and penalty notices to both trustees and third parties.

5. To ensure a consistent approach with other similar penalty regimes, we propose to model our compliance measures on Part 4 of the Occupational Pension Schemes (Charges and Governance) Regulations 2015^{[footnote 90]} (“the Charges and Governance Regulations”) and to largely replicate the provisions in relation to compliance notices, penalty notices and third party compliance notices set out in regulations 26 to 33.

6. This includes the provisions for the recovery and review of penalty notices and references to the First-tier and Upper Tribunals.

7. However, unlike the Charges and Governance Regulations compliance framework we are proposing to require that TPR must issue a mandatory penalty only in very limited instances. This would mean that TPR are not obliged to issue a penalty notice where there has been a trivial or non-material breach.

8. Instead, a mandatory penalty would apply only for wholesale non-compliance, where trustees have not published a TCFD report at all.

9. This would mean that in relation to a given scheme, it would not be necessary for TPR to review each individual disclosure under governance, strategy, risk management and metrics and targets to assess whether it met statutory requirements and impose a mandatory penalty if any or all requirements were not met. They would simply be required to confirm that a report had not been published.

10. Government has communicated to TPR that high quality climate governance and disclosures by occupational pension schemes are a strategic priority for Department for Work and Pensions (DWP).

11. In relation to mandatory and discretionary penalty notices issued, we propose that the penalty amount should be determined by TPR, but that the minimum fine they can issue for a mandatory penalty should be £2,500. This is proportionate when taking into account the scale of the risk posed to member outcomes by climate change, and when considering that the requirements will only fall on trustees of schemes with the largest governance resources.

12. The maximum fine for a penalty issued for the breach of any of the requirements proposed in this consultation would not exceed £5,000 for an individual trustee, or £50,000 for a corporate trustee.

13. Should the proposals in this consultation be adopted, we will keep the compliance measures under review and, as TCFD disclosures become more standard practice, will consider whether there is a need to strengthen or otherwise review the penalty regime.

Consultation Question

Q11: We propose that

a) TPR will have the power to administer discretionary penalties for TCFD reports they deem to be inadequate in meeting the requirements in the regulations
b) there will be no duty on TPR to issue a mandatory penalty, except in instances of total non-compliance where no TCFD report is published
c) in all other respects, we propose to model the compliance measures on the existing penalty regime set out in regulations 26 to 33 of the Occupational Pension Schemes (Charges and Governance) Regulations 2015
d) failure to notify members via the Annual Benefit Statement or to include a link to the TCFD report from the Annual Report will be subject to the existing penalty regime set out in regulation 5 of the Disclosure Regulations

Do you agree with this approach?

Impacts

14. A draft impact assessment estimating the direct and indirect financial impacts on business, as well as discussing the potential benefits to others (for example, scheme members in scope) has been published alongside this consultation. We would welcome any evidenced comments on the impact assessment.

15. We will work with pension schemes and businesses as we implement these new requirements to minimise the administrative burdens of compliance.

Consultation Question

Q12: Do you have any comments on the new regulatory burdens to business and benefits, and wider non-monetised impacts we have estimated and discussed in the draft impact assessment?

Protected groups and other comments

16. Government is required under the Equalities Act 2010 to have due regard to the needs of people with protected characteristics^{[footnote 91]}. As part of this consultation we are seeking any views and evidence of the impact of our proposals on protected groups and the age and disability characteristics in particular – and how any negative effects may be mitigated.

17. In particular, we would welcome evidence on existing provisions made by trustees of occupational pension schemes in response to requests for information in alternative accessible formats, specifically in relation to the protected characteristics of age and disability.

18. We also welcome any other comments respondents may wish to offer about other proposals in this document which are not specifically consulted on elsewhere.

Consultation Question

Q13: Do you have:

a) any comments on the impact of our proposals on protected groups and/or how any negative effects may be mitigated?
b) any evidence on existing provision made by trustees in response to requests for information in alternative accessible formats
c) any other comments about any of our proposals?

1. Disclosure Regulations 2013 – Regulation 5. ↩

2. Pensions Act 1995 – Section 10. ↩

3. Bill 165 2019-21 (as brought from the Lords). ↩

4. SI 2015/879. ↩

5. Set out in section 4 of the Equality Act 2010. ↩