In its response to a consultation on the watchdog's new powers, entitled Protecting Defined Benefit Pension Schemes, published today (February 11), the government stated some respondents had asked that the payment of large dividends be considered as a 'significant event' that would trigger notification to The Pensions Regulator (TPR).
But some others noted that responsible dividend policies played an important role in business growth and in the overall investment returns seen in the economy, and should not be viewed as detrimental to pension schemes.
The DWP stated it doesn’t propose to extend the framework to cover the payment of dividends.
However, TPR would "consider whether the level of dividend payment made […] is appropriate in relation to the scheme’s funding position, or where a recovery plan has been agreed", the government noted.
This would be done as part of TPR's review of the funding valuations submitted on a triennial basis and the wider proposals on clearer funding standards.
FTAdviser reported in December that 115 companies were paying, on average, six times more in dividends than in pension contributions to their final salary plans, after the collapse of contractor Carillion brought to light differences in policies.
The DWP also backtracked on several previously proposed warnings for companies to give to the regulator as it announced a new criminal offence for company bosses who endanger their employees' pensions and could now face up to seven years in prison.
Of the six new notifiable events the government had proposed in June, only two will be introduced.
These will require companies to notify TPR when there is a sale of material proportion of the business or assets of a scheme's employer which has funding responsibility for at least 20 per cent of the scheme’s liabilities, and when businesses grant a security on a debt and prioritise this over debt to the pension scheme.
Left behind were the requirement to notify the watchdog when a significant restructuring of the board of directors occurs, or when the sponsoring employer of the scheme takes pre-appointment insolvency or restructuring advice.
The DWP stated it would continue to work with the Department for Business, Energy and Industrial Strategy (BEIS) on the proposals set out in the government’s response to the consultation on insolvency and corporate governance on this topic.
According to Tom Selby, senior analyst at AJ Bell, the government has been working hard to get across the message that it is standing up for workers in the face of corporate interests.
He said: "The government’s decision to exclude dividend payments from its new measures will inevitably disappoint some and lead to accusations it is siding with the interests of speculators over savers.
"However, any move to restrict the ability of companies with pension deficits to pay out dividends to investors would risk damaging investment and the wider UK economy, something policymakers clearly want to avoid at all costs.
"Furthermore, the last thing scheme members want is for the sponsoring company to be forced into financial trouble by an over-zealous regulator.
"There is clearly a delicate balance to be struck here and all eyes will be on The Pensions Regulator as it reviews schemes’ funding valuations."
maria.espadinha@ft.com
