Employers who wilfully or recklessly put their defined benefit pension schemes at risk are in the firing line of new punitive fines announced in a government policy statement released on Monday.
The Department for Work and Pensions’ long-awaited white paper ‘Protecting Defined Benefit Pension Schemes’ includes a raft of changes designed to clamp down on a minority of poorly run or underfunded schemes.
It will give the Pensions Regulator powers to levy “punitive fines” against those who deliberately put their scheme at risk, and introduce a criminal offence punishment for anyone “found to have committed wilful or grossly reckless behaviour in relation to a pension scheme”.
“It is clear that not all employers want to act fairly. At the heart of the White Paper is a strong message for employers tempted to act in a way that is detrimental to their pension scheme," said Esther McVey, secretary of state for work and pensions, in a written statement to parliament. "We will not tolerate such behaviour, and will come down heavily on attempts by employers to avoid their responsibilities.”
While the department is aiming for a beefed-up regulator in line with its new ‘clearer, quicker, tougher’ ideology, it has not pursued the mandatory clearance regime called for in some parts, but feared by many in the pensions industry.
Instead, the voluntary clearance regime and notifiable events framework will be strengthened in collaboration with the regulator.
Measures will also be introduced to improve the effectiveness and efficiency of the regulator’s existing anti-avoidance powers.
“We will work with the relevant parties to ensure these measures do not have an adverse effect on legitimate business activity and the wider economy,” the paper stated.
Information-gathering powers will also be strengthened using further penalties for non-cooperation.
A new DB funding code looks set to be less prescriptive than predecessors like the Minimum Funding Regime, instead insisting that valuations demonstrate prudence, assessment of appropriate factors and long-term considerations.
DB schemes will be required to appoint a chair of trustees, with that chair responsible for submitting a statement to accompany triennial valuations.
The government is also targeting consolidation in the DB sector, consulting this year on proposals for a legislative framework, authorisation regime and accreditation to encourage merging of schemes.
