The government plans to introduce a new criminal offence to punish reckless behaviour in relation to a pension scheme, which it says will form part of a ‘tougher approach for those whose irresponsible decisions impact on their pension scheme’
The plans, contained in a white paper published by the Department for Work and Pensions (DWP), follow a consultation on proposals to protect defined benefit (DB) pension schemes. This found that while there was no systemic problem in the regulatory and legislative framework that governs such schemes, some companies misused the flexibility over contributions and making up deficits in the funds.
DWP says it plans to strengthen the regulatory framework and the powers given to the pensions regulator.
The white paper states: ‘We will legislate to introduce a proportionate and robust penalty regime to tackle irresponsible activities that may cause a material detriment to a pension scheme and may compromise the scheme’s funding position.
‘This will strengthen the regulator’s existing anti-avoidance framework, and will give the regulator an express power to penalise the targets of a contribution.
‘We will therefore legislate to bring in a criminal offence to punish wilful or grossly reckless behaviour of directors (and any connected persons) in relation to a DB pension scheme.’
The white paper makes clear this power will extend to individual company directors.
It also states: ‘We will examine the feasibility of the penalty regime applying in respect of acts or omissions prior to enactment, in particular, after the date this document is published.
‘Although the details are still being developed, it is expected that the penalty will be linked to the contribution notice, effectively creating the possibility of a highly punitive fine being issued by the regulator.’
The proposed new legislation will include a requirement for sponsoring employers or parent companies to make a statement of intent, in consultation with trustees, prior to relevant business transactions taking place that they have appropriately considered the impacts to any DB pension scheme affected. This statement will clearly set out how a sponsoring employer proposes to mitigate any detrimental impact caused by the proposed transaction on the scheme.
In addition, DWP is to consult this year on proposals for a legislative framework and authorisation regime within which new forms of pension scheme consolidation vehicles could operate, as a way of encouraging efficiencies and facilitating consolidation where this would improve outcomes for members and employers.
The consultation will consider a new accreditation regime which to help build confidence and encourage existing forms of consolidation, and will explore ways for the pensions regulator to communicate more widely about the benefits of this approach in certain circumstances.
Graham Vidler, director of external affairs, Pensions and Lifetime Savings Association, said: ‘We welcome the Prime Minister’s proposals to crack down on reckless behaviour which puts DB pensions at risk.
‘Eleven million people depend on DB for their future income and a focus on protecting the security of those pensions is essential. As well as introducing criminal sanctions we'll be looking to the forthcoming white paper to strengthen and clarify the pensions regulator's powers and to help more schemes take advantage of the opportunities of consolidation.’
Where primary legislation is required to put the proposals into practice, DWP says this is unlikely to be before the 2019–20 parliamentary session at the earliest.
Report by Pat Sweet