Bosses and employers who imperil workers’ pensions will face unlimited fines or jailtime under a proposed crackdown by the Government.
Moves to beef up sanctions follow the massive scandals involving BHS and Carillion, where savers ended up in the official pension lifeboat scheme, some with reduced payouts in retirement.
MPs have previously called for massive ‘nuclear deterrent’ penalties for firms that try to avoid pension responsibilities, while both the rescue scheme and the Pensions Regulator have asked for greater powers to combat bad behaviour.
Tough sanctions: Bosses and employers who jeopardise workers’ pensions will face unlimited fines or jailtime
Pensions Minister Guy Opperman launched a consultation today amid plans to ramp up punishments for wilful or reckless behaviour that threatens a pension scheme.
The Government said it was moving another step closer to bolstering protections for ‘defined benefit’ pension schemes. Also known as final salary pensions, they are typically generous, and provide a guaranteed income to workers from retirement until they die.
But they are often seen as an expensive burden by employers, which are obliged to fund them unless they go bust.
Proposals include allowing the Pensions Regulator to intervene more quickly and more often when companies make changes that could damage their pension scheme.
The regulator came in for fierce criticism from MPs in their report into the Carillion fiasco. They declared it ‘feeble’ and ‘chronically passive’ and said they had ‘no confidence’ in the watchdog.
The Government said the existing system is working well for the majority of defined benefit pension schemes, members, trustees and sponsoring employers, but there were ways in which it could be strengthened.
Ahead of the launch of the consultation, Mr Opperman said: ‘The Government’s position on defined benefit pensions is clear: Where an employer can, they must continue to meet their responsibilities.
‘Millions of people across the country rely on defined benefit pension schemes to support them during their retirement.
‘That’s why we are committed to introducing a range of new measures which support the Pensions Regulator to be clearer, quicker and tougher.
‘This is an opportunity to strengthen defined benefit pensions’ protection for the long term, and it is extremely important we get the changes right.’
The consultation will run until August 21. Details of how to respond are here.
What happens to your pension if your employer goes bust?
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
If you belong to a ‘defined contribution’ pension plan you are saving into an individual pot wholly owned by you, which won’t be affected by a firm’s demise.
But if you are in a final salary scheme, you pass into the Pension Protection Fund. This is an automatic process when firms go bust, so savers don’t have to do anything.
Former members who have already officially retired receive 100 per cent of what they were due, and the PPF continues to issue their payments as normal, with no annual cap even for those on a very substantial income.
Staff who retired early or are still working will get 90 per cent of what they were due, and this will be subject to an annual cap.
This cap is set by the Government and is currently £38,505.61 for people aged 65 – or £34,655.05 after the 90 per cent level is applied.
The cap is lower if you retired early, because you should receive a pension for longer. A full list of annual caps for people who stopped work at a different age from 65 can he found here.
The PPF is more generous to high-earning savers who had a long career at their company before it went bust. Last April, a Long Service Cap was introduced for people with 21 or more years’ service in their schemes.
In such cases, the cap is increased by 3 per cent for each full year of pensionable service above 20 years, up to double the standard cap.
Read more here about how the lifeboat scheme works.
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