The Pensions Regulator (TPR) will be given the power to fine company bosses who deliberately puts their defined benefit (DB) schemes at risk, the government has confirmed.
Also, company directors could be disqualified and criminally prosecuted where they have been found to have "committed wilful or grossly reckless behaviour in relation to a pension scheme", the Department for Work and Pensions (DWP) confirmed today.
In its much-anticipated white paper, titled Protecting Defined Benefit Pension Schemes, the DWP said it would work to improve "the effectiveness and efficiency" of TPR's existing anti-avoidance powers while ensuring they do not have "an adverse effect on legitimate business activity and the wider economy".
This will include strengthening the watchdog's information-gathering powers, "supported by penalties to drive co-operation", such as requiring attendance at interviews, civil sanctions for non-compliance with section 72 notices - adding to existing criminal sanctions - and inspection powers, "harmonising powers" it already has for auto-enrolment and master trust schemes.
Contribution notice and financial support direction powers will also be strengthened, while the DWP will also consult on strengthening the existing corporate clearance framework.
Alongside this, the notifiable events framework will be reviewed to ensure it covers all relevant transactions, and amended to ensure TPR is aware of potential events earlier in the process.
TPR's code on DB funding standards will also be revised, focusing on prudence when assessing liabilities, the appropriate factors for recovery plans, and ensuring a long-term view is considered when setting the funding objective.
DB trustees will also be required to appoint a chairman who will need to provide a chair's statement to the regulator alongside the scheme's triennial valuation.
The government will also move to "encourage efficiencies and facilitate consolidation for the improvement of outcomes for members and employers" by consulting on a legislative framework and authorisation and accreditation regimes for new forms of consolidation vehicles.
The DWP will also work with TPR to raise the benefits of consolidation with trustees through the Trustee Knowledge and Understanding toolkit and associated guidance, while modifying guaranteed minimum pensions (GMP) conversion legislation to support benefit simplification, making consolidation easier.
It will also review the regulated apportionment arrangement framework, working with stakeholders to improve the process and increase "the potential for positive outcomes for businesses which might otherwise fail".
Yet, it stepped back from allowing an across-the-board indexation override - allowing schemes to swap from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) - stating a "lack of consensus on what constitutes fairness" when cutting the value of member benefits. While maintaining it would "monitor developments in the use of inflation", the DWP said it was not "prepared to countenance a reduction in employer liabilities which might simply facilitate a transfer to shareholders of cash members are relying on to support them in retirement".
The measures will be phased in, with the government taking "decisive action" on some areas and "further, considered work" with stakeholders including TPR and the Pension Protection Fund (PPF) on others. "More work is required to build a consensus about the best way to deliver our aims and to design the detail of our proposals", the DWP said in the paper, confirming further consultations.
Some proposals will require primary legislation, which will be delivered once "the next phase of engagement and design has concluded" but "at the earliest opportunity". Where primary legislation is required, this is unlikely to before the 2019/20 parliamentary session, however.
In a statement to Parliament, Secretary of State for Work and Pensions Esther McVey said with around £1.5trn invested in DB pensions, it was "crucially important that the system delivers the retirement income they have saved for over many years of hard work."
"As we said when we published the green paper, DB schemes are an important pillar of the UK economy," she said. "We know that the vast majority of employers with these schemes want to do the right thing by their employees," she continued. "However, to help trustees and employers work even more effectively towards a long-term goal, we are introducing changes to scheme funding. Where employers want the best for their employees, we want to ensure that the system supports this.
"However, it is clear that not all employers want to act fairly. At the heart of the white paper is a strong message for employers tempted to act in a way that is detrimental to their pension scheme. We will not tolerate such behaviour, and will come down heavily on attempts by employers to avoid their responsibilities. We are supporting TPR to be a clearer, quicker and tougher organisation by giving it new and improved powers to gather information and require employer co-operation."
She added TPR would intervene where there is "evidence of unscrupulous behaviour" through the new fines and criminal prosecution powers.
"Defined benefit pensions are a subject of great importance to many people, representing their hopes for the future. We are determined to ensure that these hopes are protected. This white paper is a key step towards a more secure future for members of these schemes," McVey concluded.
