The UK will fine or jail company directors who “recklessly put workers’ pensions at risk” under proposed new rules.
In a consultation paper published this morning, the UK’s Department for Work and Pensions (DWP) said directors could be fined up to £1m (€1.1m) or jailed for up to seven years if they were found guilty of “wilfully or recklessly” mishandling pension schemes.
Amber Rudd, the secretary of state for work and pensions, said: “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 futures have got away scot-free. Acts of astonishing arrogance and abandon punished only with fines, barely denting bosses’ bank balances.
“Meanwhile, workers who have done the right thing and saved for retirement, confident their investments were safe, are left facing a leaner later life. That 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.”
Directors faced the fines or sentences for “reckless behaviour in relation to a pension scheme”, according to the government’s report. It also specified similar punishments for directors who fail to comply with enforcement notices from the Pensions Regulator (TPR) or who “knowingly or recklessly” give false information to scheme trustees.
The government said the punishments were “consistent with existing fraud and insolvency offences and will act as an efficient deterrent for the most serious cases of wrongdoing”.
The new sanctions were first set out in a wide-ranging white paper on pension system reform in 2017, after an influential group of MPs called for “nuclear deterrent” fines to be introduced to force employers to fully fund their pension schemes. The proposal also formed part of the Conservative Party’s manifesto for the 2017 election.
More power to TPR
Elsewhere in the report, the government set out details of new powers for TPR and requirements for employers.
Employers must notify the regulator if they sell a “material proportion” of the business that has responsibility for 20% or more of the scheme’s liabilities. They must also notify TPR if they grant security on debts that outranks that given to the pension scheme.
The government said it would develop related definitions with TPR and consult on amendments to existing reporting rules.
The government also said it would legislate for a new “declaration of intent” requirement on sponsoring employers, which would require companies to publish a statement outlining how they planned to mitigate the risks to pension funds posed by corporate transactions.
It also pledged to amend rules regarding the regulator’s ability to force employers to make pension scheme contributions, taking into account more detail of the potential impact of employers avoiding scheme payments. TPR would also be given powers to require individuals to attend interviews to aid its investigations, and greater ability to conduct on-site inspections to gather data.
Nicola Parish, executive director for frontline regulation at TPR, said the new powers would “allow us to identify potential problems earlier and take more effective action”.
She added: “The vast majority of scheme sponsors and trustees already do the right thing and we will be helping them further by delivering clearer funding standards and a revised defined benefit code of practice.
“Our new powers will act as a powerful deterrent against the poor treatment of pension schemes and help us in protecting members. We are working closely with government to ensure that the new legislation is effective and works in practice.”
The consultation paper said the DWP would “bring forward legislation as soon as parliamentary time allows”.
10m savers now automatically enrolled
Separately, fresh data has revealed that more than 10m people have been automatically enrolled into a workplace pension scheme since the system was introduced in 2012.
Rudd said auto-enrolment was “an extraordinary success story”. “Workplace pensions had fallen out of fashion and were seen as the preserve of older, wealthier people,” she said. “Now saving is the norm across the UK, wherever you work.”
Minimum contributions will rise to a combined 8% of salary in April this year.