British employers may now face up to seven years in prison if they recklessly mismanage employee pension schemes under strict new rules announced by the UK’s Department for Works and Pensions (DWP).
A new criminal offense of “willful or reckless behavior” in relation to pensions will be introduced under the proposals to crack down on abuse of final or average salary pension plans. Potential targets for penalties include all of those who have responsibility to a pension plan, including directors, sponsoring employers, and any associated or connected persons, and in some circumstances, trustees.
The DWP said the move is designed to be a deterrent for company bosses who allow deficits to escalate to unsustainable levels, or who endanger their workers’ savings through chronic mismanagement.
“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,” Amber Rudd, the UK’s secretary of state for work and pensions, said in a release. “Which is why, for the first time, we’re going to make willful or reckless behavior relating to pensions a criminal offence.”
The recommended maximum sentence of seven years is included in the government’s response to a consultation on enhancing the powers of workplace pensions watchdog The Pensions Regulator’s (TPR).
“We welcome the proposed new powers which, as a package, would allow us to identify potential problems earlier and take more effective action,” Nicola Parish, TPR’s executive director for frontline regulation, said in a release. “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 decision to make tougher penalties for pension mismanagement comes as the number of British participating in pension plans continues to rise thanks to the introduction of automatic enrollment. According to TPR, more than 10 million have been brought into workplace pensions saving by automatic enrollment since it was launched in 2012.
“The vast majority of scheme sponsors and trustees already do the right thing,” said Parish, “and we will be helping them further by delivering clearer funding standards and a revised Defined Benefit (DB) Code of Practice.”