UK - Some companies will be forced to wind up their pension scheme as an alternative to suspending dividends, former Labour minister Frank Field warns.
He claims current accounting rules make companies with large pension scheme deficits look healthier than they really are – in a similar way that off balance-sheet vehicles bolstered the accounts of Enron and other US firms.
But Field says the full implementation of the FRS17 accounting standard will highlight these deficits and have terrifying implications for UK firms.
Field said: “If these deficits persist and they were to be made up then many companies would have to say they would not be declaring dividends for the indefinite future.
“That is not a viable policy for a company’s survival and they would be pushed into thinking what else they could do – and one of the options is to wind up the scheme.”
He said it was questionable whether some companies would be economically viable and warned that major catastrophe was imminent. He also pointed out that there was no short-term fix to prevent this from happening.
He explained: “It is a possibility that there will be a major catastrophe and we will see others quickly running for cover and winding up their schemes.”
Field believes the only way to mitigate the effects of any “avalanche” of wind-ups is to set up a central insurance fund backed by the government to protect members’ benefits
He believes the only way in which the system can be salvaged in the long-term is to introduce something similar to the Universal Protected Pension – proposed by the Pensions Reform Group which he chairs.
This would mean that every pensioner would get a basic pension of 28% of average earnings – and would radically simplify the occupational and private pensions market.
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