Workers with defined benefit (DB) pension schemes will be given more protection when things go wrong, under a package of measures designed to give The Pension Regulator (TPR) more powers.
The government has announced that it will strengthen TPR’s enforcement powers through a revised code of standards. This will see the regulator given new powers to impose substantial fines when corporate transfers have a detrimental impact on pension schemes, and to build on the existing process to support the disqualification of company directors.
According to the white paper, the government wants "to ensure that those who have diligently saved through their life have the secure retirement they deserve”.
The government adds that it will legislate for a new criminal offence to punish reckless behaviour in relation to a pension scheme in a bid to make the regulator’s aims to become “clearer, quicker and tougher”.
This comes in the wake of scandals involving companies including BHS and Carillion. The collapse of BHS, for example, saw former owner Dominic Chappell fined £87,000 in February by TPR after failing to supply information.
Parliamentary committees have previously raised concerns that the regulator’s powers were merely reactive and retrospective. But through enhanced information-gathering powers, the government hopes the regulator’s powers to investigate pension scheme issues will improve.
There’s no timescale on when these new plans will take force, as it depends on when parliamentary timescales allow for it.
‘We will come down heavily on attempts by employers to avoid their responsibilities’
Commenting to parliament in a written statement, secretary of state for work and pensions Esther McVey says: “Defined benefit schemes are an important pillar of the UK economy. Around £1.5 trillion is invested by about 5,500 schemes. More importantly, these pensions are a key part of many people’s retirement income. There are 10.5 million members in the UK with a defined benefit pension: it is crucially important that the system delivers the retirement income they have saved for over many years of hard work.
“It is clear that not all employers want to act fairly. At the heart of the White Paper is a strong message for employers tempted to act in a way that is detrimental to their pension scheme. We will not tolerate such behaviour, and will come down heavily on attempts by employers to avoid their responsibilities. We are supporting The Pensions Regulator to be a clearer, quicker and tougher organisation by giving it new and improved powers to gather information and require employer co-operation. Where there is evidence of unscrupulous behaviour, we are introducing measures including a punitive fines regime and, in the most serious cases, a new criminal offence for those who deliberately and recklessly put their pension scheme at risk.”
TPR says it welcomes the conclusions of the white paper. Lesley Titcomb, chief executive of TPR, comments: “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.”
‘A bit of a damp squib’
But experts are cautious about how effective the government’s plans will be. Steve Webb, director of policy at pension provider Royal London, and a former pensions minister, comments: “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.”
Tom Selby, senior analyst at financial provider AJ Bell, adds: “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.
“So while some will view this consultation as a bit of a damp squib, it is important policymakers get any reforms in this area right. After all, it is not just the futures of 11 million DB members at stake here – millions more work for these companies and could, indirectly, be impacted by any measure which raises short-term costs for their employer.”