Pensions Regulator takes unprecedented action against trustees who breached pensions legislation and governance requirements

The Pensions Regulator (TPR) has taken unprecedented enforcement action against the trustees of two schemes in relation to serious breaches of pensions legislation and governance requirements. The sanctions in these cases demonstrate TPR’s increasingly firm approach in cases where breaches put member benefits at risk and have the potential to serve as an example to the wider pensions regulated community.

Link Pension Trustees Limited, a corporate professional trustee acting for the McDonald’s Franchisee Pension Scheme, was fined £103,750 for multiple breaches of pensions law. This is the largest ever fine issued to trustees by TPR.

The McDonald’s Scheme provides pensions for 32 McDonald’s franchisees, but is independent from the McDonald’s corporate brand. It has seven active members and 141 deferred members. The breaches came to light when TPR contacted the trustees as part of its initiative to engage with schemes falling within the definition of a master trust.

TPR fined Link Pension Trustees Limited £25,000 for failing to comply with the requirement to obtain audited accounts for four consecutive years; £18,750 for failing to provide statutory money purchase illustrations to members for two years; and £30,000 for failing to notify TPR of these breaches. The trustees were also fined £30,000 for failing to comply with the requirement to have at least three trustees on a master trust board.

Despite other schemes committing similar breaches in the past, this is the first time that TPR has used its enforcement powers to address a failure to provide members with statutory money purchase illustrations, failure to report breaches of legislation to TPR and failure to meet the master trust minimum trustee requirement. TPR emphasised that the level of fine was proportionate to the serious and repeated nature of the breaches and the harm caused. Although there was no identifiable financial detriment to members, the breaches had deprived members of information and protection.

In the second case, TPR appointed an independent trustee to oversee the Dunnes Stores (Bangor) Limited Management Pension Scheme due to concerns that a series of governance failures by the existing trustee board was putting members’ benefits at risk. This is the first time TPR has used this power primarily because of the lack of competence of existing trustees.

The Determinations Panel found that the trustees nominated by Dunnes Stores had persistently failed to address governance concerns raised by TPR. The Panel also found that, despite acting for over ten years, the trustees lacked the necessary knowledge, understanding and skills to administer the scheme properly. The independent trustee is now in the process of considering the future of the scheme and how best to protect members’ benefits.

These cases highlight the importance of ensuring that all trustees have the necessary commitment, competence, knowledge and skills. This must include familiarity and compliance with statutory obligations and governance requirements as well as their scheme’s rules and documents. The consequences of non-compliance can be costly: the maximum TPR fine for a corporate trustee is £50,000 (£5,000 for an individual) but it is clear that TPR can issue separate fines for each separate breach of law (so a £50,000 maximum in each case), which could see non-compliant schemes face potentially significant fines.