The Pensions and Lifetime Savings Association (PLSA) is looking for a number of “small but significant” changes to be made to draft corporate insolvency legislation going through parliament in a bid to avert what it has described as unintended but serious consequences for underfunded pension schemes and the Pension Protection Fund (PPF).
Published last month, the Corporate Insolvency and Governance Bill contains reform proposals flagged by the government last year as well as new, temporary meaures intended to mitigate the impact on businesses of the coronavirus crisis.
The PLSA has been lobbying for changes to the draft legislation due to concerns it would lead to underfunded defined benefit (DB) schemes and the PPF being unable to recover as much funding as they are currently able to where an employer becomes insolvent.
Ahead of the bill today entering committee stage in the House of Lords, the PLSA yesterday published the letter it wrote earlier this month to Paul Scully, parliamentary under secretary of state for the department of business, energy and industrial strategy (BEIS), to express its members’ concerns about the bill.
According to that letter, a key concern is a proposal for a new moratorium allowing up to 40 business days of protection from legal processes against a company, including those commencing a claim.
The PLSA said its members see this as making it “even more difficult” to recover unpaid pension contributions.
“By the time action can be taken, it may be too late for a DB scheme or the PPF to recover anything,” the PLSA wrote.
It also flagged concerns about the new moratorium proposal with regard to its appearing to grant priority to some pre-moratorium debt, which ranks this debt above pension debts, including those secured by a floating charge.
“We and our members fully appreciate the need for emergency protective measures to help companies survive the unprecedented business disruptions from COVID-19,” said Nigel Peaple, director of policy and research at the PLSA.
“However, the new proposals will have unintended – but very serious – consequences for underfunded pension schemes where the employer becomes insolvent, as well as for the PPF.”
According to the PLSA, a number of “small but significant” amendments to the wording of the bill could address its members’ concerns without compromising the intention of the legislation.
The changes it has suggested include:
- Limiting the bank debts that gain super-priority to those that become due and payable on a non-accelerated basis during the moratorium.
- Narrowing the definition of financial arrangements that gain super-priority so that it only covers the bank debts and does not extend to all financial arrangements and lending.
- Amending legislation to provide for a PPF assessment period to be triggered where a company enters a moratorium
In the letter, the PLSA said that, in the likely event that DB schemes and the PPF were unable to recover as much money as they were currently able to, the PPF would need to consider the impact on its funding strategy, which could lead to a levy rise for solvent companies.
A PPF spokesperson said: “We’re working closely with government to address the concerns that have been raised about specific provisions in the Bill, and to make sure pension schemes and the PPF aren’t disadvantaged.”
