" There is no systemic problem with the regulatory and legislative framework governing defined benefit pensions; this is about improvement rather than root and branch reform."
The government has proposed a series of changes to increase the protection of members’ benefits, including strengthened ‘anti-avoidance powers’ for the Pensions Regulator to "punish reckless behaviour".
The paper announces proposals to introduce punitive fines, further support the disqualification of company directors, and legislate to make it a criminal offence to commit 'wilful or grossly reckless behaviour' in relation to a pension scheme.
DWP noted that such behaviour can not only affect the value of members’ benefits but as the Pension Protection Fund is funded by a levy, "those businesses which abide by the rules bear the cost of those which avoid their pension liabilities".
The paper also outlines an improved system for all employers and schemes by clarifying scheme funding principles so trustees can make more informed decisions, making it easier for the Regulator to intervene earlier, and creating the right conditions for schemes to consolidate so benefits of scale can be realised securely.
In its paper, the government said: "Despite a few recent high-profile cases, our findings, and most consultation responses, suggest that there is no systemic problem in the regulatory and legislative framework that governs them. This framework is designed to respond flexibly to ever-changing conditions, and to provide employers and trustees with a wide range of options in how they manage their pension liability."
Tom McPhail, head of policy at Hargreaves Lansdown, commented: “No one wants to see recurrences of the problems and uncertainties which have undermined the retirement security of employees at companies like BHS, Carillion and Toys R Us in recent months.
"The government is looking to minimise the risk of such occurrences by giving the Pensions Regulator greater powers of scrutiny and by putting company directors on notice that if they neglect the interests of their employees’ pensions they could find themselves in court facing criminal charges.
"The government is also looking to facilitate scheme consolidation; if we can end up with fewer, bigger, better run schemes then all stakeholders including members, regulators and employers are likely to benefit. It is worth noting in the consultation the government has reiterated the view there is no systemic problem with the regulatory and legislative framework governing defined benefit pensions; this is about improvement rather than root and branch reform.”
However Steve Webb, director of policy at Royal London, remains sceptical of the proposals, adding: “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.”
Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association, agreed: " The ability to impose significant fines, undertake enhanced information gathering exercises and introduce an increased oversight regime can all play a role in safeguarding people’s pensions.
“However, while there is support for ensuring that TPR has the power to undertake its role, our members are keen that they are proportional and practical. We also need to ensure that we guard against unintended consequences as we build a more sustainable system. Further consultation is needed to identify how these new powers can work with and complement TPR’s existing approach and its commitment to be “clearer, quicker and tougher”.
