Company bosses could be locked up for as long as seven years if they don’t manage employee pension schemes properly, according to Work and Pensions secretary Rudd.
But Steve Webb, former pensions minister and director of policy at Royal London, told City A.M. the plan is “about being seen to do something.”
“These new laws are more likely to generate headlines than to protect workers’ pensions,” he said.
Webb said it is easy to say firms who pay out large dividends such as Carillion or BHS were reckless with hindsight. But to put people in jail a court would have to prove it “not with hindsight – but show that it was reckless at the time”.
Subsequently it would be very had to show someone recklessly under-funded their pension scheme, especially given the fact “you can guarantee people like Philip Green have very good lawyers,” he added. “There is a risk that those who failed to do all they could will get away scot free.”
Plans put forward last year for sentences of up to two years have been toughened after a consultation by the Department for Work and Pensions (DWP), and Rudd is now seeking a law making “wilful or reckless behaviour” relating to a pension scheme a criminal offence.
“If you run your company pension into the ground, saddling it with massive, unsustainable debts, we’re coming for you,” Rudd wrote in the Sunday Telegraph.
She also said the measure would target bosses who “gamble employees’ futures on risky investments” and those who “chronically mismanage a pension scheme” to the point it goes under.
Under the new laws, courts would also get the power to impose unlimited finds for the mismanagement of pensions. But the measures still need to be given parliamentary approval.
The measure was welcomed by the Pensions Regulator. Nicola Parish, executive director for frontline regulation, said the powers “would allow us to identify potential problems earlier and take more effective action”.
“The vast majority of scheme sponsors and trustees already do the right thing and we will be helping them further by delivering clearer funding standards and a revised Defined Benefit Code of Practice.
“Our new powers will act as a powerful deterrent against the poor treatment of pension schemes and help us in protecting members.
“We are working closely with government to ensure that the new legislation is effective and works in practice.”
The announcement makes a pensions bill more likely in the near future, which could also include legislation on the DWP’s flagship upcoming project, the pensions dashboard, a consultation on which finished last month.
Tom McPhail, head of policy at Hargreaves Lansdown: “The long deficit reduction periods we have seen in the past (such as with BHS) are unlikely to be an option if this legislation is passed.”
“We may see developing pressure to improve the funding of defined contribution (DC) pensions too. After all, if wilfully underfunding a defined benefit pension scheme becomes a criminal offence, why not defined contribution schemes too? We know typical contribution rates to these DC schemes aren’t sufficient to fund a decent retirement for many employees.”