UK - Opening the Pension Protection Fund to insolvent firms will push first-year claims up to at least £1bn, lawyers warn.
They say pensions minister Malcolm Wicks decision to allow firms which have experienced a “qualifying insolvency event” prior to the PPF’s introduction in April to claim the fund, could leave it open to an extra 500 claims.
The change – which grants eligibility to firms that have been in receivership or administration before April and then in liquidation – could force up employer levies and/or cut member benefits.
And they warn that Bradstock-style compromise deals will also be affected by Wicks’s decision.
Dickinson Dees head of pensions Martin Jenkins said: “There is a great queue of funds waiting to sign up for the PPF. I would expect to see between 300 and 500 schemes claim in the PPF’s first year at a cost of at least £1bn.
“There is a statutory fund that might pay up to £25,000 per pensioner, so the deal on offer by way of Bradstock has to be particularly strong to justify going ahead with it.”
Jenkins added: “There will be a second wave of claims over the next two or three years involving firms that are limping along, but cannot afford to pay contributions in the longer term. It is very unhelpful for government to make policy on the hoof like this.”
Pinsents head of pensions Chris Mullen agreed and claimed the change posed a ”significant problem” for trustees.
“In a situation where companies can’t afford to meet their liabilities, if trustees did do a Bradstock, the members may get a small amount of money but the alternative is making the company insolvent.”
But a spokesman for the department for work and pensions said: “It was not our intention to end compromise deals or force trustees to do one thing or another. Trustees have to make that decision. It was about making information available when we were in a position to do so.
“The regulator will ensure the PPF is robust enough to cope with the demands placed on it once the doors are open.”
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