Company directors who deliberately or recklessly put their workers' pension funds at risk face seven years in prison under plans to crack down on "acts of astonishing arrogance and abandon".
Secretary of state for work and pensions Amber Rudd announced that those who engage in "wilful or reckless behaviour relating to pensions" will face the custodial sentence, or an unlimited fine, if found guilty of the offence.
The plans were confirmed as the Department for Work and Pensions (DWP) today (11 February) published a response to its consultation on widening the powers of The Pensions Regulator (TPR).
The document outlines an additional 10 powers for the watchdog, including knowingly or recklessly providing false information to TPR or trustees, and failure to comply with a refreshed notifiable events network. Many of the offences are punishable by civil fines of up to £1m.
Rudd said that, while the vast majority follow the rules, the current regulatory system had failed to properly punish employers that did not.
"However, for too long the reckless few playing fast and loose with people's futures have got away scot-free," she continued. "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.
"This 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."
Yet, it was unclear when the offence will be added to the statute book as the government needs to make time to propose new legislation. In the consultation response, the DWP said the legislation would be brought forward "as soon as parliamentary time allows" while other measures required further consultation or work with TPR.
Speaking at a conference last week, pensions and financial inclusion minister Guy Opperman said the DWP would bring forward a wide-ranging pensions bill in this year's Queen's Speech, suggesting the powers could be introduced by next year.
Outgoing TPR chief executive Lesley Titcomb said the powers were "extremely welcome news for savers".
"The proposed new powers for TPR are a strong package which will allow us to identify potential problems and take effective action earlier," she said. "They will act as a powerful deterrent against the poor treatment of pension schemes and help us in protecting members."
Barnett Waddingham senior consultant Malcolm McLean welcomed the "toughening up" of the regime, but questioned the potential effectiveness.
"There are serious doubts as to how easy it will be to establish the new criminal offence of ‘wilfully' or ‘recklessly' mismanaging funds," she said. "These are ill-defined terms which a clever defence lawyer is more than likely to successfully challenge on the ‘beyond reasonable doubt' test needing to be satisfied in a criminal case.
"It may well be that the government can expect to lose the first few prosecutions it takes in this area until such a time as precedents are established and a body of case law is built up."
Despite this, he recognised that the "very existence of the law" may act as a "deterrent" and lead to very few cases being taken to court.
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