Protection to be boosted for company pensionsGovernment announces pension buyout safety net

15 April 2008

A file showing a pensions document

The government has set out plans to increase protection for people whose company pension schemes are involved in a buyout.

It plans to increase the powers of the Pensions Regulator so that unregulated companies that buy out companies and their pension schemes can be required to put in enough money to protect members' interests.

The government is concerned about a new trend in the market for third parties to buy companies with reasonably well funded final salary schemes in order to acquire their pensions assets.

They then dispose of the original business and run the pension scheme for a profit.

Pensions safety net

Minister for Pensions Reform Mike O'Brien recently said that by doing this firms were breaking the the link between an employer and a scheme.

He has also argued that pension schemes should not be treated as commodities that can be bought and sold.

There are also fears that the pensions safety net, the Pension Protection Fund, could be left to pick up the bill for underfunded schemes if the new owner ultimately walks away.

Protection fears

Mr O'Brien said it was important that the Pension Regulator's powers kept pace with developments in the market.

He said: 'Innovation is welcome, but I am concerned some emerging business models might not give the same protection for pension schemes as traditionally provided by a sponsoring employer or insurance capital.

'We need to ensure members' interests are protected. I want to guard against pension schemes simply being treated as a commodity to be bought or sold.

'The most effective way to tackle this problem is to give the regulator the power to require contributions to pension schemes when an employer's actions reduce the security of members' benefits. I want to see pensions secure and promises kept so that members can look forward to a happy retirement.'

Payments demanded

Payments can be demanded by the regulator when an 'employer or their associates, including investors in the employer' take actions that 'materially reduce the security of member benefits'.

This includes disposing of significant company assets, which could undermine the company's ability to meet pension promises.

Mr O'Brien said the new powers would only be targeted at 'risky situations', to avoid putting onerous burdens on employers, and the vast majority of schemes would not be affected.

Consultation

The change is not aimed at traditional pensions buyout companies, who are backed by insurance arrangements and have to met capital requirements set out by the Financial Services Authority.

There will be an eight-week consultation on the changes, but the core amendments will be effective from yesterday.

Derek Simpson, joint general secretary of Unite trade union, said: 'These are precisely the sort of protections Unite has been campaigning for.

'These measures will provide extra safeguards for occupational pension scheme members and their pension savings.'

The group has previously called on the government to legislate to protect pension schemes from the effects of company takeovers where the future of the scheme is left insecure.

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