New, drastic powers for the Pensions Regulator announced yesterday could put a further dampener on corporate activity and investment in an already difficult financial climate, the private equity industry has warned.
The government has moved to beef up the regulator's powers in response to the activities of companies such as Pension Corporation, which have bought firms to profit from their well-funded pension schemes - often selling on parts of the trading businesses.
Pension Corporation has notably bought Telent, the owner of the £2.5bn pension fund of former industrial giant GEC. After a long wrangle with the regulator, Pension Corporation has just agreed to dilute its representation on the pension scheme's trustee board after standing accused of a serious conflict of interest over potential access to a £514m surplus.
The regulator this week issued a statement insisting that reports of such firms being "unregulated" were erroneous.
However, unlike other buy-out specialists such as Paternoster, Pension Corporation is "uninsured" and not subject to the strict regulatory capital requirements of the Financial Services Authority (FSA).
Pensions Minister Mike O'Brien said there was a need to "guard against pension schemes simply being treated as a commodity to be bought or sold".
Previously, the regulator could only force a company to put funds into its pension scheme if it could demonstrate an actual intent to avoid its obligations.
Now it will be able to use its powers if any action - such as an asset disposal - undermines a company's ability to fund the scheme. A firm's defence of acting in "good faith" is swept away.
The Department for Work and Pensions says the change is not aimed at traditional pensions buy-out companies, which are backed by insurance arrangements, and which have to meet the FSA's capital requirements.
The failure of a major scheme could have a significant impact on the Pension Protection Fund, which currently has £1.3bn in the pot and aims to collect £675m in levies this year from 7800 schemes.
The regulator's chief executive, Tony Hobman, said: "There have been some business models which have caused concern and have highlighted the need to update the regulator's powers."
However, Simon Walker, chief executive of the British Venture Capital Association, said: "We're concerned at the unintended impact these proposals will have on a wide range of corporate activity, including private equity."
He went on: "Given the current economic difficulties, there will undoubtedly be many industrial companies, some with defined benefit pension schemes, which will be badly in need of investment. Their prospects would be damaged by these proposals."
Walker added: "It is not enough to say the regulator will act responsibly. If he has the legal capacity to abort corporate decisions, that will be sufficient to stop deals happening."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article