In the last few years we have seen an increasing use by the Pensions Regulator of its statutory power to request information – a so called ‘Section 72 request’. In fact, a recent freedom of information request that we submitted revealed that the Regulator has issued 656 Section 72 requests within the past five years. This represents an increase of 133% on the previous five years.
Based on our experience helping clients who receive Section 72 requests, we have published a short practical guide on how to respond should your scheme or organisation receive one.
If you have been on the receiving end of a Section 72 request, you’re likely familiar with the short timeframes for responding. To those unfamiliar, it can come as quite a shock that a disclosure exercise akin to civil litigation disclosure is required in timeframes as short as 1 to 2 weeks. The first consideration for anyone in receipt of a request is therefore usually ‘how can I get an extension?’.
Unfortunately the Regulator is, on the whole, reluctant to formally grant extensions. Consequently, the guide outlines the pro-active steps you can take to mitigate what might otherwise seem like an insurmountable disclosure exercise.
Searches and document reviews
The scale of the task can be daunting. We have seen Section 72 requests that vary from extremely broad document requests (for example, requesting all materials relating to funding since the scheme was established) to targeted questions requiring a narrative response on specific concerns that the Regulator has identified.
Carrying out searches and reviewing documents can be a full-time exercise, diverting staff from their day job. The cost of complying with a Section 72 request can also run to tens of thousands of pounds, or more in some cases. Trustees and sponsors may also find that they are liable to cover the costs associated with complying with an information request and carrying out searches incurred by third party service providers and advisers.
In the case of document disclosure, specialist technological disclosure processes can simplify document discovery exercises and reduce the costs and management time that could otherwise be incurred. Specialist tools and advice can also help you to be satisfied that you have complied with the request.
Whilst there is no requirement to sign a disclosure statement, our view is that submission of materials in response to a Section 72 request is akin to signing off on disclosure in any other form of litigation. However, unlike a court disclosure process where the disclosing party gives a statement of truth explaining what it has done, in our experience, the Regulator won’t adopt a proportionate approach in that way and instead insists on absolute compliance. This is particularly significant given the potential for criminal sanctions, including significant fines, for failure to comply with a section 72 request.
The most effective way to deal with a Section 72 request is, of course, not to receive one in the first place. Early collaborative engagement with the Regulator and the provision of timely and meaningful responses to informal requests for information can avoid the need for the Regulator to issue a formal request.
Avoiding a formal request can be beneficial for all parties, including the Regulator itself. It is doubtful that the Regulator has sufficient bandwidth to meaningfully review what can be thousands of documents provided in response to a wide-ranging information request. As a result, it can only be hoped that the Regulator will become more targeted in its approach thereby reducing the time, cost and complexity (for the Regulator and respondents alike) associated with Section 72 requests.
To this end, it has been suggested that the proposed introduction of a standalone power to enable the Regulator to more easily interview individuals who may hold relevant information may reduce the need for the Regulator to issue wide-ranging information requests. However, it is difficult to see how a power to interview will be anything other than a complimentary tool in the Regulator’s investigative process, which may lead to more, not less section 72 requests being issued.
Given the unrelenting political pressure on the Regulator it is likely that it will continue to use its information gathering power as a means of demonstrating its tougher, more pro-active approach to pension scheme supervision and regulation. Therefore, it is important that trustees, sponsors and other potential recipients know what to do if they receive one.