The government has announced plans to introduce a new criminal offence for bossess found to have “wilfully or recklessly” mismanaged pension funds, with a maximum prison sentence of seven years.
The top sentence was toughened from two years after public consultation, and courts will be given the power to levy unlimted fines if the proposals go through.
Work and pensions secretary Amber Rudd says that “the reckless few” have been “playing fast and loose with people’s futures” for too long.
However, pensions experts have warned that the reforms may have some unintended consequences.
While Hargreaves Lansdown head of policy Tom McPhail says that the threat of jail time may make some bosses pay closer attention to pensions, the share price of companies with large pension deficits could come under pressure as dividends are squeezed.
He also suggests that the reforms could accelarate the move away from defined benefit scheme provision for staff as directors become less willing to take that risk on.
Royal London policy director Steve Webb adds: “We first heard of these plans back in 2017 and we are still years away from seeing them put into effect. It will be very hard to prove that someone ‘recklessly’ under-funded 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”.