UK - Ministers are allowing solvent companies to wind up their schemes in deficit to prevent further calls on its Financial Assistance Scheme.
Pensions minister Baroness Hollis admitted the government had not closed a loophole in the Pensions Bill that will allow solvent firms to walk away from their pension obligations.
The winding up and deficiency on winding up regulations 2004, which force employers with sufficient assets to meet their scheme deficits, do not apply to voluntary liquidation - even if the firm has sufficient assets to pay all of its debts.
This means members are not covered by last year’s June 11 Action Plan, which requires solvent firms to meet their pensions obligations when they go into wind-up.
The loophole allowed Japanese financial services outfit Nikko Cordial Securities to wind up its UK subsidiary’s scheme without paying off its £14m deficit - leaving some 450 members with a 60% cut in their promised benefits.
Hollis described the situation as a “tightrope” because legislating to protect members’ benefits could encourage moral hazard, where schemes purposely dumped their liabilities on the FAS.
She said: “We are aware that it means some employees will be left unprotected. However, the last thing we want to do is send out a signal that companies can wind-up and walk away and the government will somehow pick up the tab. It is a difficult problem without any obvious answers at this stage. We are still working on it.”
However, Labour peer Baroness Turner of Camden said urgent action was needed to close the loophole before the Bill received royal assent.
Turner said: “A date has been set in respect of this kind of operation, and those people feel that they have no redress, as they are outside the timeframe.”
Chief executive of the pensions advisory service, OPAS, Malcolm McLean agreed.
“There is the question of the employer being foreign, and therefore outside UK law. I don’t know how they could get around that.”
And law firm Taylor Wessing said this was “a further example of a need for a revised definition of ‘insolvent’ or ‘insolvency’ to apply in specified circumstances”.
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The Department for Work and Pensions (DWP) has said it while believes in the benefits of consolidating defined benefit (DB) schemes, there are significant issues to overcome.
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