Prime Minister Theresa May has announced plans to protect the pensions of workers against irresponsible behaviour by company bosses, should the Conservative party win at the general election.
She plans to tighten the rules on the safeguarding of pensions during takeovers, and increase punishments for those caught mismanaging schemes.
A Conservative government would give the Pensions Regulator the power to scrutinise takeovers and unsustainable dividend payments that threaten the solvency of a company pension scheme.
"Any company pursuing a merger or acquisition valued over a certain amount or with over a certain number of members in the pension scheme would have to notify the Pensions Regulator, who could then apply certain conditions", the Conservative policy reads.
In cases where there is no credible plan in place and no willingness to ensure the solvency of the scheme, the Pensions Regulator could be given new powers to block a takeover.
This would include the power to issue punitive fines for those found to have willfully left a scheme under-resourced.
If fines proved insufficient, the company directors in question could be struck off for a period of time and a new offence could be introduced to make it a criminal act for a company board to intentionally or recklessly put at risk the ability of a pension scheme to meet its obligations.
Kate Smith, head of pensions at Aegon, says: “Underfunded defined benefit schemes are back in the pension spotlight, as Theresa May pledges to deal harshly with unscrupulous employers who deliberately underfund their defined benefit schemes putting members’ pensions at risk.
"The principle is welcome, and will hopefully stop another BHS debacle in its tracks, while helping to restore people’s confidence in pensions as a whole.
“Giving the Pensions Regulator more powers to block takeovers if they put defined benefit schemes at risk could be a double–edged sword. Realistically the Regulator isn’t equipped to review all potential takeovers, many of which may not take place.
"To target takeovers where defined benefit schemes are at most risk means it would have to actively monitor the corporate landscape and identify all possible scenarios. Either way the Regulator would need to be ‘resourced-up’ paid for by higher scheme levies.”
Oliver Parry, head of corporate governance at the Institute of Directors,added: “The collapse of BHS highlighted the real vulnerability of pensioners, and strengthened the case for more attention to be paid to them when a company is sold to a new owner. Mergers and acquisitions are a vital part of a dynamic economy, but directors should also remember their responsibilities to staff, past and present."
Earlier this year in February, the government launched a green paper to improve the sustainability of defined benefit schemes.
Speaking at the time, Jon Hatchett, Hymans Robertson head of corporate consulting, said: “While we agree with the DWP’s conclusion that the majority of employers should be able to continue to fund their schemes and manage the risk their schemes are running, the PPF’s modelling does suggest that in the worst 10 per cent of outcomes around 1,000 sponsors could be insolvent by 2030."