Pensions Act 2004

Commentary on Sections

Part 1 – the Pensions Regulator

Contribution notices where avoidance of employer debt

Section 38: Contribution notices where avoidance of employer debt

133.This section sets out the Regulator’s power to issue a contribution notice where certain acts or deliberate failures to act have occurred.

134.Subsection (1) provides for this section to apply to an occupational pension scheme other than a money purchase scheme, a prescribed scheme or a scheme of a prescribed description.

135.Subsection (2) enables the Regulator to issue a contribution notice to a person stating that the person is under a liability to pay the sum specified in the notice. The sum is payable to the trustees or managers of the scheme or to the Board of the Pension Protection Fund if it has assumed responsibility for the scheme.

136.Subsection (3) sets out the conditions for the issuing of a contribution notice. The Regulator can only issue a contribution notice to a person if -

• the Regulator is of the opinion that the person was a party to an act or deliberate failure to act which falls within subsection (5);

• at any time during “the relevant period” the person was the employer in relation to the scheme or connected with or an associate of that employer;

• the Regulator is of the opinion that, the person, in being a party to the act or failure, was not acting in accordance with his functions as an insolvency practitioner;

• and the Regulator is of the opinion that it is reasonable to require that person to pay the sum specified in the notice.

137.Subsection (4) provides that the Regulator cannot issue a contribution notice in prescribed circumstances to persons of a prescribed description.

138.Subsection (5) sets out what constitutes an act or failure to act in relation to this section. For an act or failure to fall within this subsection the Regulator must be of the opinion that the main purpose or one of the main purposes of the act or failure was to prevent a debt due or which might become due under section 75 of the Pensions Act 1995 (deficiencies in the assets) from being recovered, or otherwise than in good faith to prevent a section 75 debt from becoming due, to compromise or otherwise settle such a debt or to reduce the amount of such a debt which would otherwise become due. Subsection (5) also provides that the act or failure to act must have occurred on or after 27 April 2004 and includes other requirements as to when it must have occurred.

139.Subsection (6) provides that those who are party to an act or failure includes persons who knowingly assist in the act or failure and sets out the meaning of the term the “relevant period”.

140.Subsection (7) sets out that, in considering if it is reasonable to impose liability on someone to pay a contribution notice sum, the Regulator should bear in mind matters the Regulator thinks relevant, (including where relevant):

• the financial circumstances of that person;

• the degree of involvement of that person in the relevant act or failure to act;

• the relationship that person has or has had with the employer, (including where the employer is a company within the meaning of section 435 of the Insolvency Act 1986, whether the person has or has had control of the employer);

• any connection of the person with the scheme;

• whether the act or failure to act was a notifiable event under section 69 of this Act (duty to notify the Regulator of certain events); and

• any prescribed matters.

141.Subsection (8) provides that for the purposes of section 38, references to a debt due under section 75 of the Pensions Act 1995 (deficiencies in the assets) include a contingent debt under that section. Subsection (9) provides for the reference in subsection (5)(a)(ii) to preventing a debt becoming due to be read, in the case of a contingent debt under section 75 of the Pensions Act 1995, as including a reference to preventing the occurrence of the events upon which the debt is contingent. Subsection (10) sets out relevant definitions of connected or associated persons from other legislation that are applied to this section. Subsection (11) contains the definition of “insolvency practitioner”.