UK - Government changes to the Pensions Bill will force companies into insolvency and place a greater burden on the Pensions Protection Fund, lawyers warn.
They say new “anti-avoidance” clauses aimed at preventing companies from dumping their liabilities on the PPF will have unintended consequences that will make it difficult for firms to refinance when in trouble.
Under the new amendments, which were announced by pensions minister Malcolm Wicks, the pensions regulator can issue a “financial support direction” that forces companies within a multi-employer group to share the same pension scheme liabilities, including contributions and full buyout on wind-up.
Lawyers say this will make it almost impossible for a company that has pension scheme liabilities elsewhere in its group to secure funding from a credit institution. This, they say, will push companies into insolvency with unrecoverable debts dumped on the PPF.
Linklaters pensions consultant Rosalind Knowles said: “A number of companies trying to refinance in order to keep themselves going will not be able to do so if they have this liability hanging over them.
“Companies without any wrong-doing could be pushed into insolvency.”
Association of Corporate Trustees’ pensioner committee chairman Giles Orton agreed. He said: “It could do more harm than good. On the one hand the government has got to try and stop people deliberately dumping on the PPF, but they still need creditors to be willing to invest in rescue packages. The government is going to have to strike a fine balance.”
Mercer Human Resource Consulting European partner Tim Keogh said the provisions would also make it difficult for companies with pension liabilities to restructure without funding them first.
He said: “Not all will be in a position to do this. A significant minority of companies will find themselves labelled with a health warning.”
A spokesman for the department for work and pensions said: “The pensions regulator will have the power to ensure ‘financial support arrangements’ are put in place in cases where restructuring has left either service companies or subsidiaries with pension obligations that they can’t meet.”
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