personal finance

UK business rescues threatened by fears over pension regulator’s new powers

Business rescues may be hampered, or even scuppered, because of uncertainty among professional advisers over how the Pensions Regulator will exercise sweeping new powers, experts have warned.

A bill introducing wide-ranging new powers for the regulator to punish individuals who damage company pension schemes, has just completed its passage through parliament and is awaiting royal assent.

New criminal offences contained in the pension schemes bill could see those found guilty of wilfully running down a pension scheme jailed for up to seven years.

But experts said the provisions in the bill were so broadly drafted it was not clear who could be in the regulator’s sights.

About 5,500 business with defined benefit, or final-salary style pensions, are currently in the scope of the legislation. Many, particularly in the retail and transport sectors, are potentially facing restructuring pressures as a result of the pandemic.

“The act will introduce two new criminal offences which could potentially apply to a wide range of activity — both directly and indirectly related to a pension scheme,” said Laura Amin, principal with Lane Clark & Peacock, actuarial consultants.

“The offences do not just apply to company directors — and could extend to shareholders, lenders, trustees and their advisers — whether or not they were aware of the consequences of their actions at the time.”

In 2018 the government acted to boost the regulator’s powers after a series of high-profile corporate pension scandals dating back to 2016, including BHS, the failed retailer, and Carillion, the outsourcing group, left thousands of workers with poorer pensions than expected.

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A Department for Work and Pensions white paper in 2018 originally set out an intention to “target individuals who wilfully or recklessly mishandle pension schemes, endangering workers’ pensions”.

But Rosalind Connor, managing partner with Arc Pensions Law, said a “very wide range of perfectly normal (corporate) activity might be caught” by the new offences.

“It isn’t possible in advance to be able to work out what actions or events might fall foul of it,” she said.

“If you are a lender, investor or even a landlord or supplier, and you run the risk by simply engaging with a business with a defined benefit pension scheme of being caught in the criminal justice system and going to trial by jury, a lot of people simply won’t want to take that risk, however remote.”

Ms Connor added that “inevitably means that employers with defined benefit pensions will find there are fewer people to do business with, or help them in a rescue”.

The bill is likely to receive royal assent in the next few weeks but the new criminal offences and regulatory powers are not due to come into force until the autumn to give the Pensions Regulator time to consult on and issue guidance on how it will exercise its new powers. 

This month, the government confirmed the new criminal sanctions would not be applied until the guidance was issued and not retrospectively.

In spite of this assurance, experts said businesses struggling today because of Covid-19 pressures may find it more difficult to secure rescue deals.

 “If corporate decision makers don’t feel able to carry out restructuring and other corporate transactions due to fear of repercussions, then undoubtedly there will be cases where insolvency could become more likely,” said Cameron McCulloch, senior associate with Pinsent Masons, a law firm.

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The Department for Work and Pensions said: “Measures in the pension schemes bill will not impede on legitimate business rescue activities. No one who is acting in good faith has anything to fear from laws increasing protections for workers’ retirement savings.”

The Pensions Regulator said it recognised that the current economic climate posed challenges for employers and that “anyone concerned about the use of its powers in restructuring situations can approach us about possible clearance applications”. 


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