Effectiveness of regulator’s new powers questioned

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Effectiveness of regulator’s new powers questioned

Several industry experts are questioning the effectiveness of The Pensions Regulator (TPR) new powers, which were yesterday (26 June) revealed in more detail by the government.

The Department for Work & Pensions (DWP) published a consultation paper on new rules for the defined benefit (DB) sector, which will see company bosses who endanger their staff final salary plans facing a fine of up to £1m, which is a new civil penalty for more serious offences.

Labour MP Frank Field, chairman of the Work & Pensions select committee, has already criticised the value of the new penalty.

He said: “The accountancy profession must have been in charge of drafting this section of the paper, as it appears they have misplaced a decimal point.

“The likes of Sir Philip Green need to be fined a billion, not a million, if the regulator is to have a deterrent effect.”

The committee suggested new powers for the regulator back in 2016, as these would provide what it described as a "nuclear deterrent" against another BHS-style scandal.

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.”

Malcolm McLean, senior consultant Barnett Waddingham, argued the government’s consultation “leaves many things up in the air as to how the regulator’s new powers might be applied in practice and whether they will be effective”.

He said: “In particular the proposal to create a criminal offence of ‘reckless’ behaviour towards a pension scheme could prove problematic.

“How will legislation define ‘recklessly’ and how will this be interpreted by the courts? It may take a couple of failed prosecutions before we find out.”

Bob Scott, senior partner at consultancy firm LCP, also questioned the effect of these sanctions.

He said: “The burden of proof is much higher for a criminal offence as opposed to a civil offence, which means that the likelihood of anyone actually being convicted once the legislation is in place is fairly remote.

“It is possible that the threat of criminal sanction will act as a deterrent for company directors who may have been minded to short-change their pension schemes.

“However, that may just mean that they engage their lawyers to make sure that their actions – or inactions – don’t constitute ‘wilful and grossly reckless behaviour’ against their pension schemes.”

A spokesperson for The Pensions Regulator welcomed the measures proposed by the government in the consultation, which will enable the watchdog “to apply a range of sanctions, from administrative penalties to high level fines and criminal charges, for different types of breaches”, and will provide the regulator with a “more flexible enforcement framework”.

He said: “We will continue to work closely with the DWP to ensure the new powers work in practice and, in conjunction with our existing powers, are effective and proportionate.”

However, there were no draft regulations accompanying the government’s consultation.

According to Janet Brown, partner at pensions law firm Sackers, this means “the likely impact of the new powers will be highly dependent on careful and clear drafting, so as to avoid any unintended consequences”.

She said: “TPR’s resources, and its ability and appetite to use its new powers, will also be crucial in determining their ultimate effectiveness.

It therefore remains to be seen whether the government’s proposals will help the regulator in fulfilling its new ‘clearer, quicker and tougher’ mantra.”

maria.espadinha@ft.com