The collapse of BHS with a £571m pension deficit in 2016, a year after the retail tycoon Philip Green sold it for £1, brought justified clamours for government action. Now Amber Rudd, work and pensions secretary, has finally come up with a headline-grabbing response. Company bosses engaged in “wilful or reckless behaviour” linked to a pension scheme could in future be jailed for up to seven years.
Ensuring executives are fairly held to account for wrongdoing is a positive step. This proposal may indeed have a deterrent effect, and help prevent future scandals. But such egregious cases, especially ones not already covered by fraud legislation, are rare. The rest of the review of defined benefit pension schemes, of which this measure is part, falls short of what is needed to ensure the best protection for the large but dwindling number of UK citizens still in such schemes.
Considering making it a criminal offence to undermine a pension fund was a key Conservative election pledge in 2017. But “wilful or reckless” behaviour, implying intent and indifference to risk, is a high legal bar that could be hard to meet. While most executives would probably shy away from risking prison, one or two failed prosecutions would quickly undercut the measure.
Another Conservative pledge was to give the Pensions Regulator powers to scrutinise takeovers that threaten the solvency of a pension scheme. But the government backed away from forcing companies to secure clearance from the regulator whenever they sell a subsidiary with its own pension scheme. Business had argued that would throw too much grit in the wheels of corporate mergers and acquisitions. Gaining clearance will remain voluntary, though penalties for failing to seek it, if a pension problem arises later, will be stiffened.
Mandatory clearance would have been preferable, even if it slowed M&A. The government might also have introduced a legal liability for any business selling a company whose pension scheme later runs into difficulty. Some would argue that undermines the principle of the limited liability company. But the veil of limited liability was in effect already pierced in the BHS case, when Sir Philip agreed a £363m cash settlement with the regulator.
One welcome proposal in the government’s white paper is to require companies planning corporate transactions to produce a Declaration of Intent, to help pension fund trustees understand the deal and its pension implications. But the government will not legislate to specify exactly when this declaration should be shared with trustees and the regulator.
Ultimately, while about 800 company pension schemes have required help from the Pension Protection Fund since it was created in 2006, the vast majority are not BHS-type situations. Even if the number of people in those schemes represent only a small fraction of all defined benefit pension holders, legislation on companies’ responsibilities remains muddled and often weak. The best way to make the system as secure as possible would be a comprehensive review of the 2004 Pensions Act, which set up the regulator and the PPF, to make the rules tougher and more transparent.
Some in government recognise that need. Ms Rudd deserves commendation for at least trying to do something. But here, as right across government, the UK’s departure from the EU is absorbing so much time and effort that there is little left for anything else. The sooner Brexit is finally resolved, the sooner government can get on with other pressing priorities — including a more thorough review of pensions.