Company bosses who recklessly mismanage pension funds could face up to seven years in prison under plans being set out by work and pensions secretary Amber Rudd.
Plans put forward last year for a maximum sentence of two years have been toughened up after a public consultation.
Under the proposal, “wilful or reckless behaviour” relating to pension schemes will become a criminal offence and could lead to unlimited fines.
Ms Rudd says: “For too long, the reckless few playing fast and loose with people’s futures have got away scot-free. Acts of astonishing arrogance and abandon punished only with fines, barely denting bosses’ bank balances.
“Meanwhile, workers who have done the right thing and saved for retirement, confident their investments were safe, are left facing a leaner later life.
“That cannot be right, which is why, for the first time, we’re going to make wilful or reckless behaviour relating to pensions a criminal offence.”
The proposal comes after the BHS and Carillion pension scandals.
BHS, sold by Sir Philip Green for £1 in 2015, collapsed into administration in April 2016, leaving a £571 million pension fund deficit.
Sir Philip later agreed to pay £363 million to avoid action from The Pensions Regulator (TPR).
The government launched a consultation last summer as part of moves to increase the powers of TPR after outsourcing group Carillion fell into administration with a reported £587 million pension deficit.
Frank Field MP, chair of the work and pensions committee, says that the secretary of state “deserves huge credit for stepping in to sort this so early in her tenure, where others have so long failed to act”.
He is calling for the new law to be applied retrospectively.
He says: “Most people would be aghast to hear that this law doesn’t already exist. How could it ever have been legal for company bosses to recklessly or wilfully risk their workers’ pensions?
“Retrospection in the law is usually to be avoided, and for good reason. But the actions of greedy bosses like those at BHS and Carillion have torn apart thousands of people’s plans for the future. In such exceptional circumstances, shouldn’t the long arm of the law be able to reach into the past, to gain justice for those who lost so much?”
Tom McPhail, head of policy at Hargreaves Lansdown, welcomed the news and called for defined contribution (DC) pensions, which will not be subject to the new rules, to be included as well.
He says: “After all, if wilfully underfunding a defined benefit pension scheme becomes a criminal offence, why not defined contribution schemes, too? We know that typical contribution rates to these DC schemes aren’t sufficient to fund a decent retirement for many employees.
“We may also see an acceleration in the trend away from defined benefit schemes, with employers looking to get them funded to an adequate level, closed off and wound up. Company directors may ask themselves why they would want to live with this sword of Damocles hanging over them?”
However, Steve Webb, director of policy at Royal London, says that we are still years away from seeing the plans put into effect.
He says: “It will be very hard to prove that someone ‘recklessly’ underfunded their pension scheme, especially with the high level of proof needed to jail someone for up to seven years. There is a risk that those who failed to do all they could will get away scot-free.
“The issue with BHS was that the problems were not picked up and addressed much earlier in the process, rather than the lack of a strong penalty after the event. These new laws are more likely to generate headlines than to protect workers’ pensions.”
This article was originally written by our sister publication Moneywise.