Section 26: Validation of action in contravention of freezing order

108.     This section gives the Regulator power to validate by order an action which has been taken in contravention of a freezing order. It gives the trustees, managers of a scheme, or any other person directly affected by the action a statutory right to apply to the Regulator for a validation order.

Section 27: Effect of determination to wind up scheme on freezing order

109.     This section sets out the period for which a freezing order has effect in cases where the Regulator has determined to wind up a scheme whilst the freezing order is in place. It ensures that when the Regulator, on notice to the affected parties, determines to wind-up a frozen scheme, the freezing period will extend to the conclusion of any reference to the Pensions Regulator Tribunal.

110.     The Regulator retains the power to revoke the freezing order at any time.

Section 28: Effect of winding up order on freezing order

111.     A freezing order ceases to have an effect when an order made under section 11 of the Pensions Act 1995 (power to wind up schemes) commences. The winding up is taken to begin at the time the freezing order came into effect. The Regulator may order a specified person to take specified steps within a specified period where the Regulator considers the steps are necessary as a result of the winding up of the scheme beginning at that time. Non-compliance with an order attracts a penalty under section 10 of the Pensions Act 1995 (civil penalties).

Section 29: Effect of assessment period under Part 2 on freezing order

112.     A freezing order ceases to have an effect if an assessment period begins in relation to the scheme (see section 132 (assessment periods)).

Section 30: Power to give a direction where freezing order ceases to have effect

113.     This section gives the Regulator power to make directions when a freezing order ends and no winding up order (under section 11 of the Pensions Act 1995 (power to wind up schemes)) has been made. The Regulator may make an order that benefits stated in the order are to accrue under the scheme to, or in respect of, specified members of the scheme for the period when the freezing order was in effect or for part of that period. The Regulator may provide that specified conditions are to be met before benefits can accrue. These conditions can include: a requirement that specified benefits do not accrue to or in respect of specified members unless a contribution is made by or on behalf of the member; or that a specified amount of contributions be paid by or on behalf of the employer; or a requirement that such contributions are to be accepted for part or all of the period during which the freezing order was effective.

114.     Subsection (4) specifies that where a freezing order contained a direction under section 23(4)(d) or (e) and any amount of any benefit under the scheme rules was not paid as a result of the direction, then the direction does not affect any entitlement to that benefit. Any benefit to which a member, or a person in respect of a member, remains entitled at the end of the freezing period, is an amount which falls due to the member, or person, at the end of the period.

115.     Subsection (5) provides that failure to comply with an order under this section will invoke a penalty under section 10 of the Pensions Act 1995 (civil penalties) on a trustee or manager of the scheme who has failed to take all reasonable steps to comply.

116.     Subsection (7) provides that section 10 of the Pensions Act 1995 (civil penalties) will apply where an order has been made under this section which requires a contribution of a specified amount must be paid by, or on behalf of, the employer within a specified period. The civil penalty will apply if the employer has failed to comply and does not have a reasonable excuse. Where the amount remains unpaid at the end of a specified period, it will be treated as a debt due from the employer to the trustees or managers of the scheme. Notice of the failure to pay must be given to the Regulator by the trustees or managers, except in circumstances prescribed in regulations. Section 10 of the Pensions Act 1995 (civil penalties) will apply to any failure to give notice where the trustees or managers have not taken all reasonable steps.

Section 31: Notification of trustees, managers, employers and members

117.     The Regulator must notify the trustees, managers and sponsoring employer of a scheme as soon as reasonably practicable after a freezing order or an order under section 26, 28 or 30 has been made. The Regulator may order the trustees or managers of the scheme to inform all the scheme members, or members specified in the order, that the order has been made and of its effect. The period in which this notification must take place will be specified in the order.

118.     Failure to comply with the directions contained in the order will invoke a penalty under section 10 of the Pensions Act 1995 (civil penalties).

Section 32: Sections 23 to 31: supplementary

119.     This provision enables an order under sections 23, 25, 26, 28, 30 and 31 to be made even if legislation, a legal rule or a rule of the scheme would have prevented this apart from this provision and without regard to any procedural requirements which such legislation, legal rule or scheme rule would otherwise impose.

120.     Subsection (2) stipulates that the Regulator cannot make an order as mentioned in subsection (1) if, in doing so it would contravene section 6(1) of the Human Rights Act 1998 (unlawful for public authority to act in contravention of a Convention right).

Trustees of occupational pension schemes

Section 33: Prohibition orders

121.     This section substitutes a new section 3 of the Pensions Act 1995 (prohibition orders). The new section enables the Regulator to prevent a person from acting as a trustee, either in relation to a particular scheme or a particular description of trust schemes or trust schemes in general, wherever it considers that the person is not a "fit and proper" person to act as such. It is expected that the Regulator will have regard to certain considerations when deciding whether a trustee is fit and proper to act as such, including (but not limited to):

• the trustees' probity, competence and soundness of judgement;

• the diligence with which he is fulfilling his responsibilities as trustee;

• whether the interests of members of the scheme or schemes in question are in the opinion of the Regulator being prejudiced by his acting as trustee;

• whether he has contravened any provision of the pensions legislation relating to the provision or management of pensions in a country or territory outside Great Britain.

122.     The Regulator will issue guidance on how it will interpret the term "fit and proper".

123.     By virtue of subsection (2) of this substitute section, where a prohibition order is made under subsection (1) against a person in respect of one or more schemes of which he is a trustee, the order will have the effect of removing him as a trustee from all schemes to which the order relates.

Section 34: Suspension orders

124.     This section amends section 4 of the Pensions Act 1995 (suspension orders) in relation to suspension orders. The current provision is extended so that a trustee can be suspended where consideration is being given to proceedings against a trustee, rather than just when proceedings have started.

Section 35: Appointments of trustees by the Regulator

125.     Subsection (1) makes amendments to section 7 of the Pensions Act 1995 (appointment of trustees) omitting subsection (4) of that section which allowed regulations to prescribe additional circumstances when Opra (referred to as "the authority") could appoint a trustee of a trust scheme. It also inserts a new subsection 5A in the Pensions Act 1995 which will allow applications to be made to the Regulator for the appointment of trustees to trust schemes, under the powers in section 7(3)(a) or (c) of that Act. Such an application can be made by the trustees, the employer, or any member of the scheme.

126.     Subsection 2 amends section 8 of the Pensions Act 1995 (consequences of appointment of trustees under section 7) so that the fees and expenses of any trustee appointed by the Regulator may be required to be paid by the employer or out of the scheme, or by both (at the discretion of the Regulator).

Section 36: Independent Trustees

127.     Subsection (2) amends section 22 of the Pensions Act 1995 (circumstances in which provisions relating to independent trustees apply) so that section 23 of that Act (power to appoint independent trustees) will also apply where an interim receiver of the employer's property is appointed at any time during an assessment period (within the meaning of section 132 of this Act); and at any time when the scheme is authorised to continue as a closed scheme (see section 153 of this Act).

128.     New subsection (2B) and (2C) are intended to ensure that the Regulator, the Board of the Pension Protection Fund and the trustees or managers of the scheme are notified of certain events which are relevant to determining whether section 22 of the Pensions Act 1995 applies.

129.     Subsection (3) substitutes sections 23 and 24 of the Pensions Act 1995, with a new section 23 (power to appoint independent trustees). Subsection (1) of new section 23 gives the Regulator power to appoint an independent trustee where section 22 of the Pensions Act 1995 applies and where that person has been registered in accordance with subsection (4). By virtue of subsection (2) of new section 23 no more than one independent trustee may be appointed under section 23(1) at any one time. Subsection (3) of new section 23 sets out the criteria that must be met so that a person can be considered as an independent person in order to be appointed as an independent trustee under section 23. The Regulator must maintain a register of independent trustees and subsection (4) of new section 23 allows for regulations whereby the Regulator can compile and maintain the register of persons who satisfy the prescribed conditions for registration as an independent trustee. These regulations may provide for copies of the register, or extracts from it, to be provided to prescribed persons in prescribed circumstances. They may also provide for the inspection of the register by prescribed persons in prescribed circumstances. It will also be possible to charge a reasonable fee for providing copies or permitting inspection.

130.     Subsection (4) amends section 25 of the Pensions Act 1995 (appointment and powers of independent trustees; further provisions). Where an independent trustee has been appointed and he ceases to be an independent person (see section 23(3) of the Pensions Act 1995 - as substituted by subsection (3) of this section) he must, as soon as reasonably practical, notify the Regulator in writing. Section 10 of the Pensions Act 1995 (civil penalties) will apply where there is a failure to give such notice.

131.     An order appointing an independent trustee may provide for any fees or expenses of the trustees to be paid by the employer or out of the resources of the scheme, or by a combination of both. Where the fees of the appointed trustee are to be met from the resources of the scheme, the independent trustee's fee will take priority over all other claims to be met by the resources of the scheme.

Section 37: Disqualification

132.     By virtue of this section, which amends section 30(1) of the Pensions Act 1995 (consequences of disqualification under section 29), disqualification will automatically remove a trustee. This aligns disqualification under section 29 of that Act with the effect of a prohibition order under section 3 of that Act.

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".

Section 39: The sum specified in a section 38 contribution notice

142.     This section defines how the amount that a person is required to pay by way of a contribution notice under section 38 is to be determined.

143.     Subsection (1) provides that the amount specified by the Regulator in a contribution notice under section 38 must not exceed the whole of the shortfall sum in relation to the scheme. The amount specified may be less than the whole of the shortfall sum. Subsection (2) sets out how the amount of the shortfall sum is to be calculated. Where at "the relevant time" a debt was due from the employer under section 75 of the Pensions Act 1995, then the shortfall sum is the amount that the Regulator estimates the section 75 debt to be at that time. If at "the relevant time" no such debt was due, the shortfall sum is the amount that the Regulator estimates would be the section 75 debt if subsection (2) of that section applies and "the relevant time" were the time designated for the purposes of that section.

144.     Subsection (3) allows the Regulator in specified circumstances to increase the amount calculated under subsection (2)(a) or (2)(b) by way of a debt by any amount it considers appropriate. Subsection (4) sets out that "the relevant time" is the time of the act or, in the case of a failure to act, either the time when the failure occurred or if the failure continued for a period of time, the time which the Regulator determines during that period. Subsection (5) provides that any reference to a debt due under section 75 of the Pensions Act 1995 includes a contingent debt under that section.

Section 40: Content and effect of a section 38 contribution notice

145.     This section makes provision in respect of the content and effect of contribution notices under section 38. It requires the contribution notice to contain a statement of the matters which it is asserted constitute the act or failure to act which falls within section 38(5). The Regulator can decide to impose joint and several liabilities on recipients of contribution notices in certain circumstances where more than one contribution notice has been issued as a result of the same act or failure to act. The section also provides that the contribution is a debt due to the trustees or managers of the scheme. It also deals with the situation where the Board of the Pension Protection Fund has become involved with the scheme during an assessment period, in which case it will take over enforcement of the debt under the contribution notice from the trustees or managers and the Regulator.

146.     Subsection (2) sets out what matters the contribution notice should contain. The notice must specify the act or failure to act, the amount of the debt, and a list of persons to whom the contribution notices have been issued as a result of the same act or failure to act.

147.     Subsection (3) provides that, where the contribution notice states that the person is under a liability to pay the sum specified to the trustees or managers of the scheme, the sum is to be a debt due from the person to the trustees or managers. Subsection (4) allows the Regulator in such a case to exercise the same powers as the trustees or managers of the scheme in recovering this debt.

148.     Subsection (5) states that, during the assessment period (as defined in section 132), the Board of the Pension Protection Fund can exercise the rights and powers that the Regulator or the trustees or managers would normally have in respect of the recovery of the sum specified in the contribution notice. Subsection (6) provides for any debt paid in such a case to the Board during an assessment period, to be paid over to the trustees or managers of the scheme.

149.     Subsection (7) provides that, where the contribution notice states that the person is under a liability to pay the sum specified to the Board, the sum is to be a debt due from the person to the Board.

150.     Subsection (8) provides that a notice may state that the person issued with the contribution notice is jointly and severally liable for the debt with any other person specified in the notice as a person to whom a "corresponding contribution notice" is issued. Subsection (9) sets out the meaning of a "corresponding contribution notice".

151.     Subsection (10) states that a debt due under a contribution notice should not be taken into account when calculating the assets and liabilities of the scheme in relation to section 75(2) and (4) of the Pensions Act 1995 (deficiencies in the assets).

Section 41: Section 38 contribution notice: relationship with employer debt

152.     This section deals with the situation where there is an outstanding debt due under section 75 of the Pensions Act 1995 (deficiencies in the assets) from the employer in relation to the scheme at the same time as an outstanding debt due under a contribution notice. The Regulator will have power to direct the trustees or managers of the scheme from recovering the section 75 debt pending recovery of the contribution notice debt.

153.     Subsection (1) states that this section applies where a contribution notice is issued to a person under section 38 and condition A or B is met as set out in subsection (2) or (3). Subsection (2) sets out condition A. This is when there is a section 75 debt due from the employer to the trustees or managers of the scheme or the Board of the Pension Protection Fund at the time that the contribution notice is issued. Subsection (3) sets out condition B. This is when a section 75 debt becomes due from the employer after the contribution notice has been issued but before the debt under the contribution notice has been paid.

154.     Subsection (4) states that the Regulator can direct the trustees or managers not to recover the debt due under section 75 of the Pensions Act 1995 (deficiencies in the assets) pending the recovery of the contribution notice debt. Subsection (5) provides for a civil penalty under section 10 of the Pensions Act 1995 (civil penalties) to apply where trustees or managers of a scheme fail to comply with a direction issued to them under subsection (4).

155.     Subsection (6) provides that any sums paid to the trustees or managers of the scheme or the Board of the Pension Protection Fund as a result of the contribution notice are to be treated as reducing the debt under section 75 of the Pensions Act 1995 (deficiencies in the assets). Subsection (7) provides that where a payment is made in respect of the section 75 debt then a recipient of a contribution notice may ask the Regulator to reduce the amount that has to be paid under the contribution notice.

156.     Subsection (8) provides that an application under subsection (7) must be made as soon as reasonably practicable after a payment is made. Subsection (9) provides that the Regulator may reduce the amount that has to be paid under the contribution notice and issue a revised contribution notice specifying the revised sum.

157.     Subsection (10) provides that the Regulator must consider a number of factors when considering whether to reduce the amount payable under the contribution notice.

158.     Subsection (11) states that where the person to whom the revised contribution notice is issued was originally jointly and severally liable for the debt with other persons, the Regulator must also issue a revised contribution notice to those other persons specifying the revised sum and their joint and several liability with the person for the sum of the debt.

159.     Subsection (12) states that for the purposes of section 41, references to a debt or the amount of debt due under section 75 of the Pensions Act 1995 (deficiencies in the assets) include a contingent debt under that section and the amount of any such debt.

Section 42: Section 38 contribution notices: clearance statements

160.     An application may be made to the Regulator for the issue of a clearance statement. Subsection (2) specifies that a clearance statement is a statement made by the Regulator that in its opinion in the circumstances described in the application, the applicant would not be a party to an act or a deliberate failure to act falling within section 38(5)(a); it would not be reasonable to impose any liability on the applicant under a contribution notice; or such requirements under section 38 as may be prescribed would not be satisfied in relation to the applicant.

161.     Subsection (3) provides that following an application for a clearance statement the Regulator may request further information from the applicant and may invite the applicant to amend the circumstances described in their application.

162.     Subsection (4) requires the Regulator, as soon as reasonably practicable, to determine whether to issue the clearance statement, and, if it so determines, to issue the statement.

163.     Subsection (5) specifies that a section 40 clearance statement is binding on the Regulator in relation to exercising the section 38 power to issue a contribution notice to the applicant unless the circumstances regarding the exercise of the section 38 power are not the same as the circumstances described in the application for a section 40 clearance statement and the differences in those circumstances is material to the exercise of the section 38 power.

Financial support directions

Section 43: Financial support directions

164.     This section gives the Regulator power to issue a direction requiring that the recipient put in place appropriate financial support for an occupational pension scheme. This power arises where a sponsoring employer of a scheme is a service company, or is insufficiently resourced.

165.     Subsection (1) provides that section 43 applies in relation to occupational pension schemes other than money purchase schemes, prescribed schemes or schemes of a prescribed description.

166.     Subsection (2) provides that the Regulator may issue a financial support direction if it is of the opinion that the employer in relation to the pension scheme is a service company or is insufficiently resourced (as defined in section 44) at "the relevant time". The relevant time is the time within a prescribed period which ends with the determination by the Regulator to exercise the power to issue the financial support direction in question (see subsection (9)).

167.     Subsection (3) sets out that a financial support direction requires the person or persons to whom it is issued to secure that financial support for the scheme is put in place within the timescale specified by the Regulator in the direction, that this financial support remains in place until the scheme ceases to exist and that notice is given to the Regulator of prescribed events.

168.     Subsection (4) provides that the Regulator may issue a financial support direction to one or more persons.

169.     Subsections (5) and (6) set out the persons to whom a financial support direction can be issued. They also provide that the Regulator can only issue a financial support direction if it is of the opinion that it is reasonable to impose the requirements of the direction on that person

170.     Subsection (7) sets out the matters which the Regulator should consider before deciding whether to issue a financial support direction on a particular person.

171.     Subsection (8) provides that a financial support direction must identify all the persons to whom the direction is issued.

172.     Subsection (10) provides that, for the purposes of subsection (3), a scheme is in existence until it is wound up. Subsection (11) provides that no duty to which a person is subject is to be regarded as contravened merely because of any information or opinion contained in a notice given by virtue of subsection (3)(c) (notice given to the Regulator of prescribed events). This is also subject to section 311 (protected items).