Defined Benefit  

May vows to stop company pensions abuse

May vows to stop company pensions abuse

Prime minister Theresa May has vowed to stop company bosses from profiting while putting their workers’ pensions at risk.

She made her remarks after the collapse of government contractors Carillion, which led to the rescue of the business' defined benefit (DB) pension schemes by the Pension Protection Fund (PPF).

In an article in the Observer, Ms May said: "In the spring, we will set out new tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end."

The Department of Work & Pensions (DWP) has been working on its white paper on DB schemes, which was first expected to be published in 2017, then delayed to February 2018, and it is now expected before summer.

The paper, which follows a consultation launched in February into what needed to be done to ensure confidence and secure the future of these schemes, will consider the need to adapt the regulatory regime.

However, Sir Steve Webb, director of policy at Royal London and former pensions minister, argued that there is no "silver bullet solution".

He said: "The government is right to criticise firms which pay excessive bonuses or put large dividends ahead of plugging the hole in the company pension fund. But they will find it difficult to convert this concern into workable policies.

"Every company is different, and a dividend pay-out which looks excessive at one firm may be quite sustainable at another. Despite all the concern about the BHS case, nothing has so far changed, and we are probably years away from new legislation coming into force."

Sir Steve suggested some options for the government, such as allowing executive bonuses to be clawed back by liquidators in the event of a corporate failure.

He also proposed that regulators get powers to challenge firms who ask for excessive periods to pay off pension deficits while paying out large dividends or executive bonuses; or allowing them to block takeovers where it is thought these could reduce the chance to pension promises being kept.

Labour MP Frank Field, chairman of the Work & Pensions select committee, has also welcomed Ms May's "renewed enthusiasm" for implementing recommendations he made in 2016, which included new powers for The Pensions Regulator.

At the time, the committee said that these would provide what it described as a "nuclear deterrent" against another BHS-style scandal.

Mr Field said: "The key is matching words with action. That means bringing forward a Bill to clamp down on avoidance and protect pensions, as the committee suggested."

In the meantime, the committee has opened an investigation into the collapse of Carillion and its impact on the company's pension funds.

Carillion has 13 final salary schemes in the UK with more than 28,500 members, and a deficit of £587m at the end of July.

Seven pension funds have already entered a period of assessment at the pensions lifeboat, which have around 5,900 members, a spokesperson at the PPF said.