Elizabeth Ann Pelgrave v The Pensions Regulator

A contribution notice under the Pensions Act 2004 is not confined to cases involving proved financial loss to a pension scheme. The material detriment test is both quantitative and qualitative. It asks whether the act materially worsened the likelihood of accrued benefits being received, including by weakening the employer’s ability to meet scheme obligations.

Being a “party to” an act bears its ordinary meaning. A person may qualify as a participant without procuring the transaction or making the relevant decision. Reasonableness requires a multifactorial assessment of the person’s involvement, relationship with the employer, benefit received, financial circumstances and all other relevant circumstances. A contribution notice is neither primarily penal, compensatory nor disgorgement-based.

The Applicant referred to the Tribunal a Determinations Panel decision that a contribution notice should be issued against her under section 38 of the Pensions Act 2004. The Panel had determined a liability of £180,218.50 plus a time adjustment. The Regulator sought a higher sum.

The reference concerned three alleged acts extracting value from Discovery Flexibles Ltd, the sponsoring employer of an underfunded occupational pension scheme. The principal issue was whether the Applicant was party to the financing arrangements for a share sale which used an £800,000 drawdown from the employer’s invoice-finance facility, whether the material detriment test was met, and what amount was reasonable.

1. Jurisdiction and procedure. The Tribunal determined the reference de novo under sections 96 and 103 of the Pensions Act 2004. It had to make its own decision on the appropriate regulatory action, while giving due respect to the Panel’s findings and being slow to reopen facts following a full oral hearing. The Regulator could seek a higher amount than the Panel had determined, provided it remained within the warning notice.
2. Party to an act. “Party to” bears its ordinary meaning: a person concerned in, participating in or an accessory to the act. The legislation did not impose a hierarchy requiring procurement or decision-making. The Applicant was party to the sale of her shares and knowingly concerned in the associated financing because she knew that the purchase price would be funded from the employer’s resources.
3. Material detriment. The test asks whether the act materially detrimentally affected the likelihood of accrued scheme benefits being received. It is not necessary to prove that the scheme could not ultimately meet those benefits. The statutory factors require qualitative as well as quantitative analysis, including the employer’s ability to meet scheme obligations and the liquidity and recoverability of replacement assets.
4. The £800,000 drawdown increased the employer’s indebtedness and transferred the borrowed money to associated companies whose ability to repay depended on the uncertain fortunes of the employer. The transaction therefore materially increased the risk that the employer would fail to meet its scheme obligations.
5. Reasonableness and amount. A contribution notice is not a financial penalty, compensation for proved loss or primarily a disgorgement remedy. The assessment is multifactorial. The Applicant’s significant involvement, directorship, knowledge of the employer’s financial weakness, failure to obtain relevant advice and receipt of a substantial cash benefit made a notice reasonable. Her tax liability and payments to her children were taken into account in valuing the retained benefit.
6. The reasonable sum was £245,749, representing £360,437 less £78,640 paid to her children and £36,048 tax. Simple interest at 2% above the Bank of England base rate was to run from the share-sale date to reflect the time value of money. The other alleged acts did not justify increasing the amount: the monthly payments appeared to be market-level compensation, and the support for another group company appeared commercially appropriate. The reference was dismissed, the determination varied, and the matter remitted to the Regulator.

The judgment describes a reference from a Determinations Panel determination. The Tribunal dismissed the reference, varied the determination and remitted the matter to the Regulator with directions.