But former pensions minister Steve Webb, of Royal London, says the creation of the proposed new criminal offence of ‘recklessly’ underfunding a company pension scheme could miss its intended target and be a distraction from more effective measures,
The proposals, set out in the consultation Defined Benefits Schemes – A Stronger Pensions Regulator, also set out plans for TPR to be notified earlier when corporate actions threaten the covenant of a defined benefit scheme. The consultation expands on proposals published in March, which called for the introduction of a criminal charge for reckless action towards defined benefit schemes.
Under the proposals, an employer who wilfully failed to properly fund a pension could face an ‘unlimited’ fine and a potential prison sentence. But because this would be a criminal rather than a civil offence, this raises the standard of proof required from balance of probabilities to beyond reasonable doubt. Webb says this could make it harder to find individuals guilty of the offence. He argues that the focus on this issue means that other ways of making sure that pensions get paid, such as making it easier for smaller pension schemes to combine into bigger and better run schemes, are still in the early stages of consultation.
Labour pension shadow Jack Dromey says TPR already had powers it could have used to protect the assets of the embattled Carillion scheme, and says a culture change is needed at TPR to reduce the risk of similar threats to DB shemes in future.
Royal London director of policy Steve Webb says: “Threatening to lock people up grabs the headlines which is why this is the third time that it has been announced. But a criminal offence has a high burden of proof which could mean that the ‘bad guys’ simply get away with it. Even if this measure is included in a Bill in next year’s Queen’s Speech it will be 2020 before it comes into effect and it is doubtful if anyone will ever be convicted. In the meantime the government has made little progress on the more fruitful area of helping pension schemes to combine to achieve the benefits of scale. It should be focusing on practical changes that could make a real difference rather than gesture announcements like this.”
A spokesperson for The Pensions Regulator said: “The proposal to enable us to apply a range of sanctions, from administrative penalties to high level fines and criminal charges, for different types of breaches, will provide TPR with a more flexible enforcement framework. It will also help act as a strong deterrent against risky and reckless behaviour which threatens the retirement incomes of workers.
“These measures, together with greater transparency for trustees and TPR over the potential detrimental impact of corporate transactions on pension schemes and improvements to our anti-avoidance powers, are a major step forward in the protection of members.”
Dromey says: “This is a step in the right direction in terms of the strengthening of powers for The Pensions Regulator. Carillion was a disaster of government and governance and one which should never be allowed to happen again.
“However, as was revealed in the Work and Pensions Select Committee hearing, TPR had powers that it did not use in the case of Carillion. There is no point granting more powers to the regulator if it is not going to use them. A culture shift with a more robust approach on the part of TPR is vital to making sure a situation such as Carillion is never allowed to happen again.”
Barnett Waddingham senior consultant Malcolm McLean says: “The consultation takes us on a stage from the DB White Paper, but still leaves many things up in the air as to how the Regulator’s new powers might be applied in practice and whether they will be effective.
“In particular the proposal to create a criminal offence of ‘reckless’ behaviour towards a pension scheme could prove problematic. How will legislation define ‘recklessly’ and how will this be interpreted by the courts? It may take a couple of failed prosecutions before we find out.
“The DWP is looking to give the Regulator a significantly fiercer financial bite and an ability to act much sooner through eye-watering fines and the ‘Declaration of Intent’ framework. We welcome the opportunity to share our views on how effective this and the DWP’s other proposals will be, recognising that an effective regulator will benefit from being able to step in before damage can be done.”
Aegon head of pensions Kate Smith says:“We welcome today’s consultation which looks to strengthen the Pension Regulator’s powers and enable it to intervene much earlier to protect members’ pensions. In recent years we’ve seen a number of high profile cases, including the now notorious BHS pension scheme failure, where TPR was either powerless to act, or acted too late, causing a lot of heartache for members.
“The DWP is proposing that in future TPR will have to be notified of certain planned transactions or events such as the sale of a business where there is a DB scheme involved, which could weaken the sponsoring employer covenant.
“Introducing an ‘early warning system’ alerting TPR to corporate transactions which could weaken the ability of a sponsoring employer to support the pension scheme has to be a good thing and should give members and trustees some comfort. But realistically TPR cannot and should not regulate or prevent corporate transactions.”
