The Defined Benefit White Paper published today proposes legislation that would make it a criminal offence to commit ‘wilful or grossly reckless behaviour in relation to a pension scheme’.
Labour attacked the Government for publishing the White Paper through a written statement, which does not give the opportunity to debate its contents, rather than through a statement to the House of Commons. Labour pensions shadow Jack Dromey also criticised the paper for failing to include transparency measures for DB schemes.
Webb says the proposals lack teeth, with convictions likely to be difficult to achieve. He and other industry analysts have criticised the proposed pace of legislative reform. The TUC has described the paper as a missed opportunity to protect pensions. The Association of Consulting Actuaries has criticised the White Paper for not doing anything to help employers struggling with heavy DB burdens. But other industry figures have welcomed the extra powers that the proposed legislation will create.
The paper also outlines proposals to work with the Pensions Regulator (TPR) to strengthen the existing notifiable events framework and voluntary clearance regime so that employers have appropriate regard to pension considerations in any relevant corporate transactions.
The DWP will also legislate to give TPR some of the information-gathering powers already in place for automatic enrolment and master trusts to its DB and DC functions, including the power to compel any person to submit to an interview, the power to issue civil sanctions for non-compliance and an inspection power.
The Government says it will strengthen the clearance regime by building on existing processes and ‘considering what new measures might be necessary’.
The current voluntary clearance system is designed to give employers and/or potential purchasers comfort that when they are considering a particular transaction the TPR will not use its anti-avoidance powers, including proposals set out in this paper, should they go ahead. The Government says it will consider whether the whole framework can be made more effective, potentially by reviewing the role of trustees and whistleblowing activity and asking TPR to review their clearance guidance to ensure it is clear and captures all appropriate transactions.
Shadow pensions minister Jack Dromey MP says: “The Government has yet again shown a complete disregard for Parliamentary democracy with the publication of its much-delayed pensions White Paper, sneaking it out in a written statement to prevent proper scrutiny.
“Labour has long called for a stronger Pensions Regulator and the introduction of criminal charges for bosses who short-change workers’ pensions is welcome. The time has come for pension cheats to end up in the dock.
“Ministers have failed to tackle one of the major scourges of pension benefits, transparency of costs for scheme members. Until the Government tackles the opaque nature of costs in Defined Benefit pension schemes, scheme members will continue to be short-changed.”
Royal London director of policy Steve Webb says: “Clamping down on employers who 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. There is a risk that this is simply ‘gesture legislation’ which will never be used in practice.
“The other measures in the white paper also look worryingly slow. Helping small pension schemes to consolidate into larger schemes could be helpful, but legislation appears to be years away. 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.
“Even when it comes to takeover activity which could potentially damage workers’ pension funds, the white paper is still talking mainly about ‘voluntary’ notification to the regulators. It looks as though the government’s desire not to interfere in business transactions has taken priority over the desire to protect pensions.
“All in all, there is little in this paper that offers reassurance that we will not be reading about another Carillion or another BHS in the months and years to come.”
ACA chair Bob Scott says: “We are disappointment that no new relief to employers struggling with DB liabilities appears to be proposed. Our survey of employers conducted last year found this was needed if more employers are not to abandon DB provision. In that regard, whilst our survey found employers generally support tougher rules and fines for directors not taking sufficient care in protecting scheme members’ interests, we wonder whether these tougher rules – without any help for struggling employers with DB liabilities – will again provide a further impetus for prudent directors to close schemes in favour of lower cost DC arrangements, with inferior pension outcomes.”
Hymans Robertson partner Clive Fortes says: “The Pensions Regulator should not have to wait for a crime to be committed before having the power to intervene, so today’s White Paper recommendations are welcome. We are strongly supportive of the need to stamp out unscrupulous behaviour by scheme sponsors. The threat of criminal conviction should act as an effective deterrent against employers wilfully doing the wrong thing by members of their pension scheme.
“But we must remember that the vast majority of employers work hard to do the right thing by the members of their DB pension schemes, working collaboratively with the trustees to deliver members’ benefits in full. Since the start of the millennium UK employers have collectively contributed over £500bn into their pension schemes although deficits remain stubbornly high.
“Inevitably there will be a few employers who put individuals’ DB pensions at risk. It is, however, essential to be able to distinguish between deliberate acts by an employer that put members’ benefits at risk and, for example, poor investment outcomes flowing from the trustees’ investment strategy or poor business decisions leading to the failure of the sponsoring employer.
A statement from Redington says: “While the new powers are positive, there is a potential concern around how well-resourced TPR is to use these effectively. Alongside additional powers, a framework for monitoring and triaging suspected problem cases to allow TPR to prioritise resource should be developed further. Recent high-profile cases have demonstrated how difficult it is, even with the benefit of hindsight, to pinpoint exactly where action should have been taken and by whom.
“Anti-avoidance powers could have unintended consequences for corporate transactions and reasonable corporate restructuring. It will be important to ensure that these new measures do not have an adverse effective on legitimate business activity.”
AJ Bell senior analyst Tom Selby says: “There has been much rhetoric from Prime Minister Theresa May about the Government getting tough on company bosses who shirk their responsibilities to defined benefit pension scheme members.
“The document is filled with suggestions of actions that could be taken to protect savers and prevent another BHS or Carillion-type disaster, but anyone hoping the Government would come down on firms like a tonne of bricks will likely be disappointed.
“There are reasons for the Government’s reticence in taking the hammer to firms sponsoring DB schemes. These companies are central to the UK economy, employing hundreds of thousands of people across all manner of sectors. Policymakers will therefore be keen to ensure any measures to protect pension scheme members do not disproportionately affect the ability of these businesses to spend and invest in the short-term – particularly with Brexit now just 12 months away.”
TUC general secretary Frances O’Grady says: “This is a missed opportunity to build a pensions system that’s fit for the future. It’s good that employers won’t be able to slash pension rises without members’ consent. But ministers are doing nothing to stop the closure of good-quality pension schemes. Millions of workers across the country will still worry about poverty in retirement.”
TPR chief executive Lesley Titcomb says: “We called on government for more effective powers and so we welcome the proposals. 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.
“Furthermore, strengthening the notifiable events framework will improve our regulatory grip and will ensure we are sighted sooner on planned transactions that could pose a risk to scheme members.
“We will now work closely with government to develop the white paper’s proposals, including fines and criminal sanctions, to ensure they are proportionate, act as an effective deterrent and work in practice.
“The best support for a DB scheme is a strong employer and we believe the current flexible funding framework, which allows employers to balance growth with meeting pension benefits, remains the right approach and we will aim to retain this flexibility in any new approach.”