Company bosses who endanger their staff defined benefit (DB) pensions will face a fine of up to £1m, under government’s proposals published today (26 June).
The Department for Work and Pensions (DWP) has issued a consultation paper on The Pensions Regulator’s new powers in the DB sector, which will include a new civil penalty for more serious offenses.
In March the DWP published its DB white paper, which sets out a series of new measures for the regulator "to undertake a tougher and more proactive role".
The new civil penalty will allow the watchdog “flexibility to issue different levels of fines for a range of further breaches, including non-compliance with new requirements being introduced as a part of the White Paper.
In particular, the regulator “will be able to apply high-level fines to deter behaviours which are more serious in nature and have resulted in actual harm to the pension scheme, or have the potential to do so, if left unchallenged,” the government said.
The officials believe a £1m cap would be in line with similar breaches levied by other regulators, such under the Financial Conduct Authority's (FCA) senior managers regime.
TPR will determine the amount of the fine, within the cap, based on the seriousness of actions.
The watchdog already has the ability to issue a limited civil fine of up to £5,000 for individuals and £50,000 for corporate entities, which will continue to exist.
Regarding criminal sanctions – which will be introduced to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme – the government argued that these could include “a further tier of unlimited fines and/or custodial sentences”.
The DWP said: “We intend these sanctions to be used in the most serious of cases of wrongdoing, where the Regulator decides that it is appropriate to bring a prosecution.”
Sir Steve Webb, director of policy at Royal London, and former pensions minister, has already criticised this measure.
He said: “Threatening to lock people up grabs the headlines which is why this is the third time that it has been announced.
“But a criminal offence has a high burden of proof which could mean that the ‘bad guys’ simply get away with it. Even if this measure is included in a Bill in next year’s Queen’s Speech, it will be 2020 before it comes into effect and it is doubtful if anyone will ever be convicted.
“In the meantime, the government has made little progress on the more fruitful area of helping pension schemes to combine to achieve the benefits of scale. It should be focusing on practical changes that could make a real difference rather than gesture announcements like this.”
Nevertheless, the government is introducing a number of new requirements companies will have to fulfil regarding corporate transactions.
A firm with funding responsibility for at least 20 per cent of the scheme’s liabilities will have to notify the regulator if it sells “a material proportion of the business or assets”.