U.K. outlines legislation to rein in pension plan abuses

In efforts to protect £1.5 trillion ($1.9 trillion) in savings held by private pension plans, proposed legislation will allow the The Pensions Regulator to tackle irresponsible fund management by setting funding standards for troubled pension funds and utilizing criminal sanctions to punish executives for risky decisions.

The Pension Schemes Bill, outlined Monday in the Queen’s Speech, calls for rogue pension fund executives to face as much as seven years’ imprisonment and a civil penalty of up to £1 million.

“The bill would give us the power to set and enforce clearer funding standards in defined benefit pension schemes, while also providing early warning of potential problems,” said TPR CEO Charles Counsell in an emailed comment: “Where problems do arise, new criminal sanctions and civil fines will act as a strong deterrent against risky and reckless behavior, giving us flexibility to issue fines at the appropriate level, depending on severity.”

The bill, still required to be passed by Parliament, introduces several other changes, including a permission for plans to set up collective defined contribution plans, which allow participants to pool assets and share risk in decumulation phase, and regulations setting out circumstances under which plans have the right to transfer from one plan to another.

Gregg McClymont, director of policy at the £7 billion ($8.8 billion) multiemployer defined contribution plan The People’s Pension, West Sussex, England, also welcomed another element of the bill: the government’s attempt to compel retirement-account providers to supply retirement data that would be visible to savers via dashboards alongside state pension information.

“Without compulsion the dashboard is a pipe dream. But there remain a package of measures necessary if the public are to have confidence in dashboard. Dashboard won’t work unless all savers can see all their pensions in one place. Total coverage is therefore crucial,” Mr. McClymont said.

Responding to the launch of collective defined contribution plans, a spokesman at the £9.6 billion Royal Mail Pension Plan, London, welcomed Monday’s announcement of the Pension Schemes Bill. “If the bill is passed, this will enable collective defined contribution pension schemes under U.K. law, for the first time in the U.K,” he said.

Matthew Arends, head of U.K. retirement policy at Aon said in an emailed comment that the CDC plans, the dashboard and the regulator’s powers are “overdue changes that should each provide pension savers with better outcomes.”

However, the bill did not outline how commercial consolidators, such as Clara-Pensions or the Pension SuperFund ­— vehicles designed to pool assets of corporate defined benefit plans — would be permitted to operate in the U.K. market to improve funding levels.

“It’s disappointing that legislation for DB consolidation has been left off Parliament’s legislative agenda,” Alistair Russell-Smith, partner at Hymans Robertson. “It’s clear that commercial consolidator transactions could get more cash into schemes, improving funding levels and member security and reducing the burden on the Pension Protection Fund,” he said. “However, in the continuing absence of an authorization regime for providers, it’s likely that some transactions will continue to stall, slowing the growth of this market.”