Pension experts have given a cautious welcome to new government plans to make it a criminal offence to “recklessly” underfund a workplace pension.
The work and pensions secretary Amber Rudd says that the current fines were not enough, and she was looking to introduce a tougher regime. This would include unlimited fines and jail terms of up to seven years for directors who mismanage or endanger their employees’ retirement savings with ‘wilful or reckless behaviour’.
Rudd added that she wanted firms to take pension liabilities more seriously. It is thought such action is designed to prevent a repeat of the recent pension scandals, involving both BHS and Carillion.
However pension experts say this criminal behaviour may be hard to prove, and the Government focus should be on forcing large companies to increase pension payments to reduce potential liabilities.
This announcement comes just two months after action by The Pension Regulator forced Southern Water to pay an additional £50m into its pension fund, after the regulator identified an imbalance between pension contributions and shareholder dividends.
Research by Hymans Robertson – published at the end of last year – found that 115 companies were paying, on average, six times more in dividends than they were in pension contributions, and potentially face action by the regulator on this issue.
Former pensions minister, and director of policy at Royal London, Steve Webb says this announcement is unlikely to lead to any immediate changes.
He says: “We first heard of these plans back in 2017 and we are still years away from seeing them put into effect.
“It will be very hard to prove that someone ‘recklessly’ under-funded their pension scheme, especially with the high level of proof needed to jail someone for up to seven years.”
He says there needs to be more focus on ensuring firms make sufficient payments into a pension, before they get into financial difficulties.
He adds: “The issue with BHS was that the problems were not picked up and addressed much earlier in the process, rather than the lack of a strong penalty after the event. These new laws are more likely to generate headlines than to protect workers’ pensions”.
Introducing this new criminal offence Rudd says: “The vast majority of bosses take their responsibilities seriously and look after their workers’ retirement funds. However for too long the reckless few playing fast and loose with people’s future have got away scot-free. Acts of astonishing arrogance and abandon punished only with fines, that have barely dented bosses’ bank balances.”
“This cannot be right, which is why, for the first time, we’re going to make wilful or reckless behaviour relating to pensions a criminal offence.”
Rudd’s comments were aimed at firms running older DB-style pensions, others have called for this approach to be extended to the DC market place.
Hargreaves Lansdown head of retirement policy Tom McPhail welcomed Rudd’s announcement. But he says: “If wilfully underfunding a defined benefit pension scheme becomes a criminal offence, why not defined contribution schemes too?
“We know typical contribution rates to these defined contribution schemes aren’t sufficient to fund a decent retirement for many employees.”
This article was first published in Corporate Advisor magazine. You can read the original article here.