Mismanagement of pension funds by reckless bosses ‘to become criminal offence’
Wilful or reckless behaviour in the handling of company pension funds could become a criminal offence in the UK, according to a government white paper published yesterday (19 March) that announced new proposals to ‘crack down’ on unscrupulous bosses.
The Protecting Defined Benefit Pension Schemes white paper was welcomed by employers and experts as a “giant step in the right direction”, as it promised to provide The Pensions Regulator (TPR) with tougher, more active powers to intervene when employers evade their obligations.
Measures outlined in the white paper include giving TPR the power to punish employers that deliberately put their pension schemes at risk by introducing punitive fines and improving the effectiveness and efficiency of their existing anti-avoidance powers, which protect member benefits and hold employers to account.
The government said it would legislate to introduce a criminal offence that will punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme. It would also build on existing processes to support the disqualification of company directors.
A consultation will be carried out over the coming months to ensure this is delivered effectively. As a policy document, the government’s white paper proposals for future legislation are still subject to change.
Prime minister Theresa May told reporters that the government would “put in place tougher, more proactive powers so that TPR can intervene more effectively to protect individuals” against the small minority of employers evading their responsibilities, ensuring the majority would no longer have to “bail out the irresponsible few”.
Under its current powers, TPR can pass on any evidence of criminal offences to law enforcement agencies, but the government said it would seek to enhance this so the regulator could be “clearer, quicker and tougher” in managing these situations.
“We called on government for more effective powers and so we welcome the proposals,” Lesley Titcomb, chief executive of TPR, said in a statement.
“Planned improvements to our scheme funding, information-gathering and anti-avoidance powers will enable us to be clearer about what we expect from employers in relation to scheme funding, and tougher where a scheme is not getting the funding it needs.”
Speaking to People Management, a TPR spokesperson said it supported the proposal to impose criminal sanctions on those who risk the retirement incomes of pension savers.
“We now need to work closely with government to ensure all the measures in the white paper are effective, proportionate and work in practice in conjunction with our existing powers. It is therefore too early to confirm exactly when the new powers will come into effect, or to what scale.
“We have recovered more than £1bn through the use of our anti-avoidance powers. Such cases are complex, lengthy and require us to meet a high evidential bar.
“Imposing criminal sanctions is likely to have an even higher bar – and so it’s important that we work closely with the government on delivering this measure effectively.”
Kate Smith, head of pensions at Aegon, said the measures to protect against a “small minority” of unscrupulous employers were a “giant step in the right direction”.
“It is sending out a loud and clear message that reckless behaviour from employers that puts [defined benefit] schemes at risk will no longer be tolerated. Those employers found guilty of deliberately putting their defined benefit schemes at risk can be heavily fined and risk a criminal record,” she said.
“It’s timely that the government is also looking to strengthen TPR’s powers around corporate transactions that could negatively impact their [defined benefit] scheme.”
Smith said that, “taken together, these new powers will strengthen defined benefit schemes and give greater protection to members’ pensions, and in turn should reduce the numbers of defined benefit schemes falling into the Pension Protection Fund. There’s more work to be done, but this is a giant step in the right direction.”
However, other experts felt the measures could be slow to introduce and difficult to enforce. Steve Webb, director of policy at Royal London, said the new laws could be reduced to “gesture legislation”.
“Clamping down on employers that wilfully under-fund their pension schemes will obviously be a popular measure. But proving that someone has wilfully or recklessly failed to fund their company pension is likely to be extremely difficult, and company bosses are likely to have good lawyers,” he said.
“There is a risk that this is simply ‘gesture legislation’ that will never be used in practice.
“With an Act of parliament likely to have to wait until 2019-20 and further detailed regulations needed after that, it could be a long time before today’s paper has any practical impact.”
The move for greater enforcement measures follows a series of scandals around the collapse of industry giants, including construction firm Carillion, which went bust in January with a reported pension deficit of £587m.
Retailer Toys R Us also went into liquidation last week, shedding 33,000 jobs with as-yet-unidentified pension losses. BHS, whose 2016 bankruptcy saw the pensions of more than 19,000 employees come under severe threat, was later saved by a 2017 settlement of £343m with former owner Philip Green.
“Employer covenants are under pressure and failures like Carillion, BHS and, most recently, Toys R Us clearly signal that this is a situation that cannot be ignored,” Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association, said.
“We look forward to working closely with the DWP and the industry as we work together to build more secure defined benefit pensions.
“We are glad to see that the government has been looking at the relationship between good corporate governance and good outcomes for pension scheme members.”
Further information on the government consultation to ensure the proposed measures outlined in the white paper will be effective, workable and proportionate, will become available on the DWP website in coming weeks.