Defined Benefit  

Company stops dividend payments as regulator intervenes

Company stops dividend payments as regulator intervenes

Action from The Pensions Regulator has forced an unnamed company to prioritise its pension scheme over dividends to its shareholders.

According to its latest Compliance and Enforcement Bulletin, published today (May 16), the watchdog intervened in the case of a defined benefit scheme which was considered a funding risk, due to the low level of deficit repair contributions it was making and the length of the proposed recovery plan (more than 13 years).

TPR also considered there was a significant covenant risk - over the years, funds had been taken from the employer and transferred to another company in the group – and governance issues, as the scheme trustee board included the company’s finance director and HR director.

After intervention from the regulator, the company agreed to an upfront payment of £10m to the scheme, a reduction in the recovery plan length to seven years, annual deficit recovery payments of £3.7m and a commitment to stop dividend payments for six years.

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.

However, the Department for Work and Pensions has dismissed calls for the regulator to be alerted to companies which pay out large dividends.

Nicola Parish, TPR’s executive director of frontline regulation, said the regulator has set out its expectations for all workplace pension schemes clearly and will continue to intervene where it has "concerns that a DB scheme is not being treated fairly by an employer".

She said: "This is one of many examples of our work with trustees and employers to secure appropriate recovery plans and agree acceptable deficit recovery payments, better protecting the savers in those schemes."

In its work on auto-enrolment, TPR saw a 15 per cent increase in the use of its powers against employers compared with the previous quarter.

The regulator explained that the recent rise is due to an increasing number of employers reaching their three-year re-enrolment date, which must re-declare compliance to TPR, as well as the continued enforcement activity against employers after the first increase of combined minimum contributions in April 2018 to 5 per cent.

FTAdviser reported yesterday TPR will be cracking down on employers suspected of not complying with their auto-enrolment duties by conducting short-notice inspections over the summer.

maria.espadinha@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.