UK government blocks 'protection' loophole
The UK government has acted to deter companies from “dumping” their pension obligations onto the planned Pension Protection Fund with new clauses introduced into the pensions bill.
“The government is aware of possible cases where it appears that some employers may have already taken action aimed at dumping their liabilities on the PPF,” said the Department of Work and Pensions. It did not name the companies.
“The new clauses should act as a deterrent to employers who are considering dodging their pension obligations,” said pensions minister Malcolm Wicks. “They will also provide reassurance to responsible employers that their levy payments will not be subsidising unscrupulous employers.”
He said the package would “safeguard the integrity and sustainability of the PPF and avoid placing an unfair burden on responsible levy payers”.
Russell Agius, a partner at the Higham Group, said: “This is a wake up call for lawyers, actuaries and consultants that have advised companies on setting up structures designed to reduce the strength of the employer covenant. Trustees and company pension scheme members who become aware of these moves should contact OPRA immediately.”
The measures would allow the new Pensions Regulator to force a person or company who has avoided pension obligations to pay contributions. And the regulator will have the power to require that “financial support arrangements” be put in place where restructuring has left pension obligations that can't be met.
Wicks said: “Mitigating the risks of moral hazard is one of the biggest challenges we face in introducing the Pension Protection Fund.”
q The government has named Zurich Financial Services’ former UK insurance chief Lawrence Churchill as chairman of the Pension Protection Fund. Pension minister Andrew Smith made the announcement at the annual conference of the National Association of Pension Funds in Glasgow.
“Lawrence is a very respected figure in the financial services industry,” Smith said. “His leadership and the experience he brings will help get the protection fund off to a good start.”
Churchill, 58, joined Zurich in 2002 as chief executive of its UK, Irish and international life
businesses. He was formerly chairman and managing director of Unum. Before that he was CEO of NatWest Life.