Company executives will face criminal charges if they mismanage defined benefit (DB) pension schemes, the government has announced.
Bosses who wilfully or recklessly jeopardise the retirement savings of their employees will be punished under a brand new criminal offence carrying a jail term of up to seven years, the work and pensions secretary Amber Rudd (pictured) has announced.
The collapse of sponsoring employers, including high-profile names such as BHS and Carillion, rattled faith in DB pension scheme promises as members’ entitlements had to be rescued by lifeboat scheme the Pension Protection Fund.
MPs on the influential work and pensions committee held an inquiry into the collapse of BHS and remarked that ‘the future of occupational pension schemes is perhaps the greatest challenge facing long-standing British businesses’.
The ‘wilful and reckless’ offence was put forward last April after Carillion collapsed.
Tom McPhail, Hargreaves Lansdown head of policy, said while existing regulatory controls of pension scheme funding and the auditing of corporate financial management ‘do a good job at protecting workers and their pensions’, recent high-profile cases such as Carillion and BHS ‘have shown this isn’t always enough’.
There will be added pressure on employers to pump cash into DB schemes if the proposal becomes law. As a result, said McPhail, ‘we may see greater pressure put on the dividends of companies with large pension deficits, which could in turn impact their share price’ as well as an acceleration of orderly scheme closures ‘with employers looking to get them funded to an adequate level, closed off and wound up’.
Frank Field MP, chair of the work and pensions committee, said: ‘Retrospection in the law is usually to be avoided, and for good reason. But the actions of greedy bosses like those at BHS and Carillion have torn apart thousands of people’s plans for the future.
‘In such exceptional circumstances, shouldn’t the long arm of the law be able to reach into the past, to gain justice for those who lost so much?’
However, Royal London head of policy Steve Webb struck more cautionary note. Webb said it would be ‘very hard’ to prove someone recklessly under-funded a pension scheme, ‘especially with the high level of proof needed to jail someone for up to seven years’.
‘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.'
The announcement also increases the likelihood of the government bringing forward a pensions bill in the near future, which could then include the necessary legislation to implement the pensions dashboard,’ added McPhail.