In depth

Pensions legislation and case law update: the latest developments week ended 6 August 2021

Gateley Legal

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In this week’s update, we report on the Government’s ‘Investment Big Bang’ call to UK institutional investors and the FRC’s sanctions against KPMG in the Silentnight case.

Prime Minister and Chancellor publish joint challenge for 'Investment Big Bang'

On 4 August 2021, the Prime Minister and Chancellor of the Exchequer published an open letter to the UK's institutional investors challenging them to assist with an 'Investment Big Bang' to "unlock the hundreds of billions of pounds sitting in UK institutional investors and use it to drive the UK's recovery". 

The call is for institutional investors such as UK pension funds to increase the proportion of investments that they hold in long-term UK assets. The letter recognises that investments remain a matter for trustees and custodians, but it is the opinion of the Prime Minister and the Chancellor that long-term investment options should be considered by all UK institutional investors. 

The letter also recognises that the Government has responsibility for resolving 'obstacles and costs' to investing in long-term, illiquid investments and references Government initiatives which are designed to assist with this including the new UK Infrastructure Bank, the upcoming first UK Green Gilt issue and the DWP's proposals to allow smoothing of performance fees within the charge cap for DC schemes over a longer period of time.

The letter ends with an invitation to institutional investors who are willing to commit to investing in UK long-term assets to an Investment Summit in Downing Street this October.

Silentnight: FRC sanctions KPMG and former KPMG partner

On 5 August 2021, the Financial Reporting Council announced sanctions against KPMG LLP and a former KPMG partner for conduct in relation to the Silentnight group of companies between August 2010 and April 2011, following a referral from the Pensions Regulator and an investigation carried out pursuant to the Accountancy Scheme. The Silentnight group of companies were acquired in a pre-pack administration on 7 May 2011 under which the defined benefits pension scheme was severed from the sponsoring employer and the scheme then entered a Pension Protection Fund assessment period. 

The FRC's announcement follows an investigation by the Pensions Regulator into the case (see our insight update). The Regulator's position was that after acquiring the employers' bank debt, the HIG Group, a US private equity firm, brought about the employers' insolvency and then bought the business at an undervalue during the ensuing administration looking to make a £47m capital gain on the deal, and thereby reducing the amount recoverable by the scheme to the material detriment of members.

The independent Disciplinary Tribunal found that there had been Misconduct in relation to breaches of fundamental Objectivity and Integrity principles, with KPMG's involvement being described as 'deeply troubling' and lacking objectivity. KPMG had not acted solely in its client's interests but had acted contrary to those interests and in those of the private equity firm. The former partner had acted dishonestly and thus he and KPMG lacked integrity including when dealing with both the PPF and the Pensions Regulator.

KPMG has been severely reprimanded and must:

  • pay a fine of £13m plus £2.45m towards the costs of the investigation and £305,814 for the Tribunal's costs;
  • arrange for an independent review to take place; and 
  • after receiving the review's results undertake its own review of policies, procedures and training.

 The former partner has been:

  • fined £500,000;
  • severely reprimanded; and
  • excluded from ICAEW membership and precluded from holding an insolvency licence for 13 years.

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