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  • International Workplace
  • 4 April 2018
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Criminal offence for reckless employers who put pension schemes at risk

Legislating to introduce a criminal offence to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme is one of the key recommendations of a new government white paper that announced new proposals to ‘crack down’ on unscrupulous bosses. 

The Protecting Defined Benefit Pension Schemes white paper highlights that, while the government believes the pensions system is working well for the majority of Defined Benefit schemes, trustees and sponsoring employers, a tougher approach is needed for those few whose irresponsible decisions impact on their pension scheme.

It reports that although most employers want to do the right thing by their pension scheme, safe guards are needed against the small minority of employers who may be content to put it at risk. Reckless behaviour can not only affect the value of members’ benefits but as the Pension Protection Fund is funded by a levy, those businesses that abide by the rules bear the cost of those that avoid their pension liabilities.

To prevent employers seeking to avoid, reduce or limit their pensions liabilities, the Regulator was given a range of ‘anti-avoidance powers’ when the framework was set up. In general, these work well. However, there have been recent calls for government to strengthen these powers so they can proactively prevent harm to pension schemes and punish reckless behaviour.

The government’s manifesto made a commitment to take action to prevent and punish those whose deliberate actions put pension schemes at risk. In the new white paper it commits to:

  • Strengthen the regulatory framework and the Regulator’s powers, as set out in the government’s 2017 manifesto, to:
    1. give the Regulator powers to punish those who deliberately put their pension scheme at risk by introducing punitive fines;
    2. legislate to introduce a criminal offence to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme and build on the existing process to support the disqualification of company directors; and
    3. work with the Regulator 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. This includes improving the effectiveness and efficiency of the Regulator’s existing anti-avoidance powers. Government will work with the relevant parties to ensure that these measures do not have an adverse effect on legitimate business activity and the wider economy.
  • Provide the Regulator with the right tools to do their job, by:
    1. ensuring that they receive the information required to conduct investigations effectively and efficiently. These powers will be supported by penalties to driver cooperation.

Taken together, the white paper says, these new powers will strengthen the deterrent against and punishment for reckless behaviour and give the Regulator the ability to respond more quickly and decisively where they believe wrongdoing has taken place. Given the complexity of some of these measures, it commits to undertake further work with the Regulator and key parties and conduct further consultation where necessary to ensure that these measures are effective, workable and proportionate and that any risks of unintended consequences are appropriately mitigated.

The full report is available to view here.