Judgment affirmed: Target ordered to pay increased amount following approval of contribution notice in tribunal
Upper Tribunal Upholds Contribution Notice Against Director for Material Detriment to Pension Scheme
In a significant ruling, the Upper Tribunal has upheld a contribution notice issued by The Pensions Regulator against a director of a sole sponsoring employer of a company pension scheme. The decision, made on August 6, 2025, sets a precedent for directors' responsibilities towards pension schemes.
The ruling establishes that material detriment to a pension scheme means a significant negative impact on its ability to meet its obligations. This impact is assessed based on real-world consequences, not just on an accounting balancing basis. For instance, an increase in the employer company's indebtedness that adversely affects the likelihood of meeting pension payments constitutes material detriment.
In this case, the Upper Tribunal found that the director was party to a transaction that had caused a material detriment to the employer's defined benefit scheme. The tribunal determined that the director was aware that money was being extracted from the company, with around £360,000 used to buy out her shares in the parent company.
The regulator argued that the sum specified in the contribution notice ought to be the whole amount of the benefit the director had received (£360,437) plus a passage of time adjustment. However, the calculated contribution notice amount was £245,749. The reduction was due to the fact that the contribution notice regime is not a penalty regime, and the starting point for the contribution notice was 50% of the £800,000, but this was capped by the value of the benefit the target received, less the tax paid and amounts given to children.
The director's argument that she was not a party as she was not a key decision maker was rejected. The Upper Tribunal held that the director was party to an act which met the material detriment test and it was reasonable to issue a contribution notice.
This ruling is in line with the regulator's position in the warning notice. It underscores the importance of directors protecting all stakeholders' interests, including pension scheme members. A director’s failure to engage with or question weakening company resources can justify imposing a contribution notice. Lack of inquiry or advice by directors about protecting the pension scheme’s interests is not a defense.
Notably, the repayments to the scheme total over £2m, with the payments made following contribution notices issued to family members connected with the sponsoring employer dating back to 2023. The regulator's press release on August 6, 2025, detailed these repayments.
In conclusion, the rules and guidelines for directors are clear: they must avoid actions causing material detriment to pension schemes, and if they do, regulatory authorities like The Pensions Regulator can seek contribution notices. The Upper Tribunal can uphold these notices based on assessments of material detriment, reasonableness, and directors’ responsibilities to protect scheme interests.
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