Personal PensionMay 15 2017

Conservatives promise new rules to protect pensions

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Conservatives promise new rules to protect pensions

Prime minister Theresa May has promised the “greatest extension of rights and protections for employees by any Conservative government in history”.

The Conservative manifesto, scheduled for publication later this week, will promise more rights for “gig economy” workers and signal tougher rules to protect employees’ pensions from “unsustainable dividends and takeovers".

This has been a source of political concern following the collapse of BHS, the retailer formerly owned by Sir Philip Green.

The manifesto will also promise employees the right to leave work for training purposes, to care for a family member or in cases of child bereavement.

Writing in the Financial Times today (15 May), Mrs May said: “The Conservative party has always been the true party of those workers.

“And at this great moment of national change, when the country is choosing which leader will take us through the Brexit negotiations and beyond, it is the Conservative party that is the unashamed voice of ordinary working people once again.” 

Earlier this month, Mrs May promised 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, according to Mrs May.

"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, said: “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, said: “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, the government launched a paper on defined benefit transfers.

Mrs May's pension pledges come after Labour's general election promise to scrap the planned increases in state pension age beyond 66.

According to Steve Webb, former pensions minister and director of policy at Royal London, this move could cost taxpayers nearly a third of a trillion pounds.

stephanie.hawthorne@ft.com