UK - Experts fear it will take a string of large corporate bankruptcies to force the government to tighten laws on security for pension scheme members.
Morgan Stanley executive director Gareth Derbyshire believes the government’s refusal to become the “guarantor of last resort” for pension schemes will become less and less tenable if a substantial number of workers lose out as the result of the collapse of a large firm.
With significant numbers of final salary plans looking increasingly underfunded and company profits falling concurrently, this type of scenario looks all the more likely.
Derbyshire said: “Most DB plans are significantly underfunded and it is not a radical suggestion to say that if a sponsoring company goes bust then there is likely to be a very significant difficulty in meeting the buyout costs on wind-up.
“If that company happens to be a large company, then the consequences of that could be very substantial – both in terms of general public concern about pensions and its impact on how this is viewed by government.”
But Hewitt Bacon & Woodrow principal Raj Mody said it would be reckless for a scheme to rely on the government to bail it out should the sponsoring company fail.
And he stressed that nobody could predict whether the government would buckle under political pressure to prop up insolvent schemes.
“It would be reckless to assume that the government would bail out any individual scheme if it did go horrendously wrong,” he said.
HSBC Actuaries and Consultants head of the investment practice David Clare agreed.
He said the government would be concerned that if it bailed out one pension scheme it would have to do the same for many others.
He suggested that it was possible a government guarantee could encourage some smaller companies to go into voluntary liquidation in order to allow the state to pick up a pension scheme deficit.
The Pensions Regulator (TPR) has set out plans to use "new regulatory initiatives" with over 1,000 schemes as it aims to tighten its regulatory grip and boost member outcomes.
HM Revenue and Customs (HMRC) has announced it is delaying the provision of data that will enable pension schemes to confirm the guaranteed minimum pension (GMP) benefits to pay to members until the end of the year.
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