The government has been urged to review the scope of new criminal sanctions introduced by the pension schemes bill that have “been drawn incredibly widely” and could “deter respectable people from becoming trustees”.
Members of the House of Lords criticised the measures in a debate on the bill on Tuesday, with peers pointing to a number of issues with the new legislation.
The Department for Work and Pensions reintroduced the bill on January 7, after the general election delayed its debate in parliament.
New powers for the Pensions Regulator in relation to defined benefit schemes form a key pillar of the legislation, including the introduction of new criminal offences, with the most serious carrying a maximum sentence of seven years’ imprisonment and a civil penalty of up to £1m.
Applying criminal sanctions to anyone associated with a scheme for some areas where simple judgment has been exercised by them could result in some quite minor actions and even normal business activity becoming a criminal matter
Lord Kirkhope of Harrogate
Baroness Drake welcomed the government’s intention, but noted that “a power designed to prevent future BHS and Carillion-type situations has been drawn incredibly widely”.
She said: “It could criminalise minor actions or ordinary business activities and expose third parties such as banks and even trade unions to sanctions, giving rise to consequences not properly considered.”
Minor actions could become criminal matter
According to Lord Kirkhope of Harrogate, bad employers should always be criminalised in appropriate circumstances.
But he noted: “Applying criminal sanctions to anyone associated with a scheme, including especially trustees, for some areas where simple judgment has been exercised by them could result in some quite minor actions and even normal business activity becoming a criminal matter.”
Other peers including Baroness Neville-Rolfe have expressed similar fears about the disincentive to becoming a trustee.
Baroness Janke questioned the policy intention, asking if the new criminal offences should apply to activities and events that are "day-to-day business activities that get caught accidentally, but which are without wilful intent”.
“The bill needs to be looked at again, and some redrafting needs to be done,” she said.
Rosalind Connor, partner at Arc Pensions Law, said that the government has addressed some of these concerns, but has failed to include the details in the bill itself.
In its response to a white paper published in March 2018, the DWP specified that negligent behaviour requires someone to have the right mental state, and said the sanction was aimed at scheme employers and their groups.
“The wording in the bill doesn’t have any of those limits,” Ms Connor noted.
“There is certainly an argument that the present fines are not enough, and there needs to be criminal sanctions.
“But the problem with the drafting is that it could cover anyone at all who does something that affects a pension scheme – someone who might be completely unconnected, and who no one would blame, such as someone contracting with, or lending to, a group of companies that has a pension scheme.”
Ms Connor said that however unlikely the sanctions are to catch these unconnected people, the impact on stakeholders could be very real.
“In practice, this could really frighten people off, and the risk is that businesses that have DB pensions may find it much harder to borrow or even do business with others, because of this risk. Ironically, this will make those businesses struggle, and do the opposite of protecting their defined benefit pensions,” she said.
Key features of the pensions bill
Providing a framework for the establishment, operation and regulation of collective money purchase schemes (commonly known as CDC pensions).
Strengthening the Pensions Regulator’s powers and the existing sanctions regime. This will include introducing new criminal offences, with the most serious carrying a maximum sentence of seven years’ imprisonment and a civil penalty of up to £1m.
Giving the regulator powers to obtain the right information about a scheme and its sponsoring employer in a timely manner, ensuring that it is able to gain redress for pension schemes and members when things go wrong.
Providing a framework to support pensions dashboards, including new powers to compel pension schemes to provide accurate information to consumers. This will include provisions for the regulators to ensure relevant schemes comply.
Creating regulations to set out circumstances under which a pension scheme member will have the right to transfer their pension savings to another scheme.
Improving the DB scheme funding system by requiring a statement from trustees on their funding strategy.
Amending the legislation for the Pension Protection Fund compensation regime to enable the lifeboat to continue to apply the compensation regime as intended and amend the definition of administration charges.
Nigel Peaple, director of policy at the Pensions and Lifetime Savings Association, agrees that the new criminal offences could apply to an extremely wide range of parties and actions.
He said: "This could include, for instance, trustees, banks that lend to employers, advisers, insurers and investment counterparties and even pension scheme members.
"This is likely to have damaging unintended consequences for the day-to-day running of pensions schemes, stifle legitimate corporate activity and create unnecessary costs. We would like to see greater clarity from government on the scope of these new powers, the circumstances in which they may be used, and a narrowing of whom the new powers could and should affect.”
Government urged to revise legislation
Sir Steve Webb, former pensions minister and director of policy at Royal London, said: “The general thrust of this bill is widely welcomed, but there are still serious concerns about both what is in the bill and what is left out.”
He added: “While the DWP can ultimately use its majority in the Commons to ‘ram through’ pretty much any legislation, the pensions system would be better if it listened carefully to the concerns raised by peers and amended its own bill.”
Responding on behalf of the government, Baroness Stedman-Scott said that the policy intention is not “to stop legitimate business activity, such as lenders taking security for normal financing activities”.
She said: “The government is clear that businesses must be allowed to make the right decisions to allow them to develop and grow.
“The majority of employers want to do right by their scheme. However, we must ensure that sufficient safeguards are in place to protect members’ pensions from the minority who are willing to put them at risk – I mention no names.”
TPR declined to comment on this matter.
