Bosses who mismanage pensions face seven-year jail term
The proposal forms part of government plans to introduce a new criminal offence which outlaws company directors who mismanage their workers’ pension funds, according to a piece written by Rudd in The Sunday Telegraph.
The plans, which require parliamentary approval, mark a change from proposals outlined last year which included introducing a maximum sentence of two years in prison.
“If you run your company pension into the ground, saddling it with massive, unsustainable debts, we’re coming for you,” Ms Rudd said.
The new rules would also give courts the power to levy unlimited fines for mismanagement of pensions. Rudd noted that this would mark a change from current rules, which see company directors punished with fines that barely dent their bank balances.
Avoid another BHS pension scandal
Tom McPhail, head of policy at Hargreaves Lansdown, noted that recent high profile cases such as Carillion and BHS have shown that regulatory controls of pension scheme funding and the auditing of corporate financial management do not always go far enough to protect workers’ pensions.
“There are potential knock-on consequences if this proposal is carried through. We may see greater pressure put on the dividends of companies with large pension deficits, which could in turn impact their share price,” McPhail explained.
He also suspects there could be increased pressure to improve the funding of defined contribution (DC) pensions too. These are schemes which rely on contributions from workers and their employers.
“After all, if wilfully underfunding a defined benefit pension scheme becomes a criminal offence, why not defined contribution schemes too? We know typical contribution rates to these DC schemes aren’t sufficient to fund a decent retirement for many employees.”
“We may also see an acceleration in the trend away from defined benefit schemes, with employers looking to get them funded to an adequate level, closed off and wound up. Company directors may ask themselves why they would want to live with this sword of Damocles hanging over them?” McPhail added.