‘Ignorance’ no defence for failing to produce Chair Statement

In this case PEN-2021-0219, the First Tier Tribunal held that a lack of knowledge and understanding was not a reasonable excuse for trustee’s non-compliance with regulatory requirements relating to annual governance statements (‘Chair Statements’).

Background

A pension scheme employer (Ease & Co (Banquette Seating) Ltd), which was also the trustee of the scheme, disputed a penalty notice issued by The Pensions Regulator (TPR) for failing to comply with the requirement to produce an annual governance statement (usually referred to as a chair’s statement). The notice required the employer to pay a penalty of £500.30 (the minimum amount which could be imposed, together with the nominal and customary addition of 10 pence for each active scheme member).

The fact of non-compliance was not in dispute, but the employer argued that failure to provide the statement was unintentional and the result of a lack of knowledge of complex regulatory requirements.

Nevertheless, the tribunal held that the penalty notice was valid because, under the regulations (SI 2015/879), the imposition of a penalty notice was mandatory. The tribunal also added that the statutory provisions for trustees to have knowledge and understanding of (among other things) the law relating to pensions and trusts (section 248 of the Pensions Act 2004) are ‘clear and unequivocal’.

Lessons learned

The case highlights the ‘strict liability’ nature of failure to comply with the requirements for chair statements and that this applies to all trustees, irrespective of the size of an employer or its pension scheme (in this case, the scheme had only three members).

The case also demonstrates that ‘lack of knowledge’ is not a reasonable excuse for non-compliance. A person exercising the function of trustee must have the degree of knowledge and understanding of (inter alia) the law relating to pensions and trusts that is appropriate for the purpose of enabling him to exercise those functions.

Importantly, the case does not address the detailed requirements for chair statements. In other cases, TPR has fined a trustee for failing to produce a compliant chair statement as opposed to, as in this case, failing to produce a statement at all. Hopefully, additional guidance for trustees will be considered following the DWP’s recent post-implementation review of The Occupational Pension Schemes (Scheme Administration) Regulations.

It is also worth noting that that there are circumstances where the requirement for a chair’s statement falls away. To quote TPR:

“If your scheme is in wind-up at the point of the scheme year end, you’ll need to decide whether it is likely to be completed within seven months of the year end. If it becomes apparent that the wind-up of the scheme will not be completed within seven months of the scheme year end you will need to prepare a chair’s statement before the seven-month period has elapsed. If you fail to prepare a chair’s statement and your scheme is still winding up when you complete your scheme return following the end of the seven-month period, you’ll need to declare that a chair’s statement had not been produced. Failure to produce a statement within seven months of the scheme year end attracts an automatic penalty of between £500 and £2,000.

The above is also true of a scheme that is likely to cease to be a relevant scheme (as defined in the regulations) prior to the end of the seven-month period. For example where a scheme with a DB and a DC section has wound up the DC section within the seven-month period and only the DB section remains”.