Company Directors to face criminal prosecution over pension mismanagement, says UK Government

White paper released today outlines changes to rules for country’s DB schemes

The UK Government has said company directors will face criminal prosecution and disqualification for mismanaging their defined benefit (DB) pension schemes, and that company bosses who wilfully put schemes at risk will face fines.
It follows a series of scandals hitting the UK DB pension landscape recently – notably the department store BHS’ pension scheme, which was left with a deficit assessed at some £571m after it collapsed in 2016. Former owner Sir Philip Green was strongly criticised for selling the company for £1 just before its demise. He eventually voluntarily paid £363m into the scheme after strong political pressure from the Pension Regulator.
Construction firm Carillion is the latest high-profile scandal, with the pension fund being bailed out by the UK’s Pension Protection Fund. Former high street chain Sports Direct has also received major criticism for its pension activities, along with various other household names.
Today, the UK government has announced that the Pensions Regulator will be given tougher powers to protect defined benefit schemes, including criminal prosecution if directors are found to have “committed wilful or grossly reckless behaviour in relation to a pension scheme”. 
The move is outlined in just-published white paper, Protecting Defined Benefit Pension Schemes. Alongside wider powers for the Pensions Regulator, the government has also said its Funding Code of Practice will be revised, focusing on prudence in assessing scheme liabilities and ensuring a long-term view is considered. 
In addition, trustees of defined benefit pension schemes will be required to appoint a Chair to regularly report to the Pensions Regulator on the scheme’s valuation.
The government will also move to encourage and facilitate consolidation of DB pensions schemes for “the improvement of outcomes for members and employers”.
It comes as the country’s 89 public-sector DB schemes are in the process of a consolidation process to create eight large asset pools.Introducing the white paper, Secretary of State for Work and Pensions Esther McVey said that although most private DB schemes were closed to new members and new accruals, the sector remained an integral part of the UK pensions system, with 10.5m members relying on them and around £1.5trn in assets held by the schemes.
“The White Paper sets out our approach for the future of the defined benefit system, and supports the regulator’s ambition to be clearer, quicker and tougher,” she said.
In reaction, Graham Vidler, Director of External Affairs, Pensions and Lifetime Savings Association, said: “The ability to impose significant fines, undertake enhanced information gathering exercises and introduce an increased oversight regime can all play a role in safeguarding people’s pensions.  
“However, while there is support for ensuring that TPR (The Pensions Regulator) has the power to undertake its role, our members are keen that they are proportional and practical. We also need to ensure that we guard against unintended consequences as we build a more sustainable system. Further consultation is needed to identify how these new powers can work with and complement TPR’s existing approach and its commitment to be ‘clearer, quicker and tougher’”.
Steve Webb, Director of Policy at fund manager Royal London, and a former UK Pensions Minister, questioned the effectiveness of the announced measures: “Clamping down on employers who wilfully under-fund their pension schemes will obviously be a popular measure.
“But proving that someone has wilfully or recklessly failed to fund their company pension is likely to be extremely difficult, and company bosses are likely to have good lawyers. There is a risk that this is simply ‘gesture legislation’ which will never be used in practice.
“The other measures in the white paper also look worryingly slow. Helping small pension schemes to consolidate into larger schemes could be helpful, but legislation appears to be years away. With an Act of Parliament likely to have to wait until 2019/20 and further detailed regulations needed after that, it could be a long time before today’s paper has any practical impact.
“All in all, there is little in this paper that offers reassurance that we will not be reading about another Carillion or another BHS in the months and years to come.”