UK – The UK government looks set to announce its proposals regarding protection for employee pensions in the case of company insolvency this summer.

Pressure has been mounting on the UK government to ensure that employee pensions are protected following a sponsoring company insolvency. UK company pension deficits, and recent cases such as Maersk and Cardiff-based steel maker, ASW, have highlighted the inadequacies of UK pension regulation in the event of insolvency, which has caused concern among ministers. The wind up of Maersk’s UK final salary pension scheme left members up to 60% short of the benefits they were expecting, receiving much publicity, particularly from the unions.

Back in October, work and pensions minister Andrew Smith said any changes in pensions legislation must protect existing employees in the case of a scheme being wound up, and in the UK’s green paper on pensions reform last December, it was proposed that a consultation on the issue of providing “a safety net” for employee pensions would take place. Government insiders are expecting a decision in the summer, and a spokeswoman at the Department of Work and Pensions said a response to the green paper would be released “shortly”.

Several ideas are being considered, and the consultation period, which ended in March, was in-depth. The Department of Work and Pensions and the Government Actuaries Department also met with the US Pension Benefit Guaranty Corporation last month, in addition to analysing the pension insurance and regulation in other countries.

One source, who wished to remain anonymous, said that a white paper on the topic was probably going to be released in the summer, but added that whether this would happen or not was questionable. “The government is addressing the issue, but there is a big difference between wishing to find a solution and finding a solution.”

Proposals to ensure employee pensions are protected in light of company insolvency, other than compulsory insurance, have been made by the National Association of Pension Funds, based on the Financial Services Compensation Scheme. “We would envisage a scheme with powers to borrow money should the need arise. There would need to be an upper limit on the amount each scheme was required to contribute as a post event levy. This could either be expressed as an amount per member or as a percentage of pensionable payroll. Any shortfall, raised through borrowing, could be cleared by raising further, smaller, levies over subsequent years,” said the association today.

The Association of British Insurers broadly supports the proposal put forward by the NAPF. A spokeswoman for the ABI said: “The concept of a mutual fund whereby each member puts in a premium to cover liabilities is one of which we are broadly supportive. The NAPF’s suggestion of a scheme similar to that of the Financial Services Compensation Scheme – we would broadly be in favour.”

She added that the concept of an insurance policy, however, whereby employers pay a premium on a long-term basis to insurers in case of insolvency would be unaffordable and unfeasible, as the premiums would be likely to be “far too expensive.”

UK daily newspaper, Financial Times, reported today that the results of the consultation are expected to suggest a compulsory government-backed pension insurance scheme, but the Department of Work and Pensions said this was purely “speculation”.