09 September 2019

On 8 November 2016, the Upper Tax Tribunal confirmed that the Regulator had jurisdiction to issue a financial support direction (FSD) to target companies in the Box Clever anti-avoidance case, and it was reasonable to do so. On 20 June 2019, the Court of Appeal dismissed a challenge against this decision, upholding that the Regulator was correct in seeking to enforce its anti-avoidance powers.

The Court of Appeal clarified three main issues in the judgment:

  1. Confirmation of Retrospective Effect
  2. In deciding to issue an FSD, it is permissible for the Regulator to take into consideration events that occurred before the Pensions Act 2004 came into effect to support its decision. The court held the legislation contains no explicit time limits and, as stated in the judgment:

    “It is unlikely that Parliament intended…to limit the scope of the [Regulator’s] power to issue an FSD to future circumstances, rather than give it wide and immediate effect.”

  3. Fault not a prerequisite
  4. The absence of fault does not mean an FSD cannot be imposed; targets of FSDs are still responsible even when not at fault.

    “The distinction drawn…between fault on the one hand and responsibility on the other is…a valid one...Thus it is possible to say, as the Tribunal did say in this case, that even though a target was not at fault legally or ethically, it nevertheless bears a high degree of responsibility for an insufficiency of funding.”

  5. Reasonableness
  6. Retrospectivity must be considered in assessing whether it is reasonable to impose an FSD, but it is not a “trump card”. If the reasons for imposing an FSD outweigh arguments on retrospectivity, then imposing an FSD will not be unreasonable.

    “The need for a balance to be struck is apparent when the consequences of a decision that the imposition of an FSD is (or is not) reasonable are considered…Retrospectivity, even in a case where the target is not at fault, is not necessarily a trump card”.

What is the impact?

The judgment provides greater clarity for both the Regulator and trustees and employees in understanding how the FSD legislation will be applied, particularly as the appeal to Supreme Court has since been refused.

Written by Clive Pugh and Lauren Seager

Key contact

Clive Pugh

Clive Pugh Pensions Partner and Head of Pensions Regulatory Investigations

  • Pensions Regulatory
  • Pensions Services
  • Pensions Legal Advice 

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