The Department for Work and Pensions defined benefit pension scheme White Paper, published on Monday, also wants to see more smaller schemes to consolidate to drive down costs and minimise the risks of collapse.
The White Paper recommends “punitive fines” and introduces a criminal offence of “wilful or grossly reckless behaviour in relation to a pension scheme”.
The paper aims to set out a road map to stop disasters like the collapsed Carillion which was running up large debts while winning huge government contracts.
In direct response to the case of BHS, which saw the high street name and its DB scheme change hands for a pound, report authors also want to force bosses to consider the consequences for their pension scheme during mergers and acquisitions.
A damp squib
Tom Selby, senior analyst at AJ Bell, said the report was “damp squib” because it was afraid of recommendations which might shake fragile business confidence.
“While there has been much rhetoric… this is the greenest of green papers,” he said.
“Anyone hoping the Government would come down on firms like a tonne of bricks will likely be disappointed.
“There are reasons for the Government’s reticence in taking the hammer to firms sponsoring DB schemes. These companies are central to the UK economy, employing hundreds of thousands of people across all manner of sectors.”
Selby added that policymakers will therefore be keen to ensure any measures to protect pension scheme members do not disproportionately affect the ability of these businesses to spend and invest in the short-term – particularly with Brexit now just 12 months away.
Steve Webb, a former pensions minister and director of policy at Royal London, said proving someone had wilfully or recklessly endangered a fund could be extremely difficult, even if the principle was popular.
“There is a risk that this is simply ‘gesture legislation’ which will never be used in practice,” he said.
“The other measures in the white paper also look worryingly slow. Helping small pension schemes to consolidate into larger schemes could be helpful, but legislation appears to be years away. With an Act of Parliament likely to have to wait until 2019/20 and further detailed regulations needed after that, it could be a long time before today’s paper has any practical impact.”
Webb also observed that many of the notifications set out were voluntary, underling a lack of appetite to “interfere in business”.
“All in all, there is little in this paper that offers reassurance that we will not be reading about another Carillion or another BHS in the months and years to come,” he said.
Regulatory arbitrage
The paper also recommended the Financial Conduct Authority takes a bigger hand and work more closely with the Pensions Regulator.
Closer liaison should drive efficiencies and wipe out regulatory arbitrage, commented Aegon’s Steven Cameron.
“While The Pensions Regulator and FCA have different remits, they also have significant overlaps meaning a joined up approach should lead to efficiencies both for the regulators and the regulated,” the pensions director at Aegon said.
“In the workplace pensions market, it’s important to offer members of group personal pensions (GPPs) and master trusts equivalent standards of protection, recognising their different approaches.
“Any differences that prompt ‘regulatory arbitrage’ should be wiped out.”
Cameron also argued the paper ignored the plight of the self employed who are currently not nudged into work place pensions which enrol on an opt out basis.
