The Pensions and Lifetime Savings Association (PLSA) has written to the Department for Business, Energy and Industrial Strategy (BEIS) to express its concerns over the potential impact of the Corporate Insolvency and Governance Bill on schemes.
In a letter to BEIS parliamentary under-secretary of state Paul Scully, the PLSA said it believes the bill opens the door for bank lenders to be higher up the pecking order than employees' pensions when it comes to recovering cash from a company insolvency.
Under current rules, debts owed to a defined benefit (DB) pension scheme, as unsecured creditors, are paid out after secured creditors in an insolvency situation, unless the scheme has a form of contingent security. When a scheme sponsor becomes insolvent, the majority of the deficit will often remain unpaid with the Pension Protection Fund (PPF) picking up the responsibility for paying out schemes' member compensation.
However, the PLSA said its members have noted that the bill's proposal for a new company moratorium - that allows up to 40 business days of protection from legal processes against a company, including those commencing a claim - will make recovering unpaid pension contributions even more difficult than the current arrangements.
In its letter, the PLSA suggested a number of small, but significant, amendments to the wording of the bill in a bid to rectify these issues without compromising the intentions of the legislation.
The trade body's suggested changes include:
- Limiting the bank debts that gain super-priority to those that become due and payable on a non-accelerated basis during the moratorium.
- Narrowing the definition of financial arrangements that gain super-priority so that it only covers the bank debts and does not extend to all financial arrangements and lending.
- Amending legislation to provide for a PPF assessment period to be triggered where a company enters a moratorium.
PLSA director of policy and research Nigel Peaple said: "We and our members fully appreciate the need for emergency protective measures to help companies survive the unprecedented business disruptions from Covid-19. However, the new proposals will have unintended - but very serious - consequences for underfunded pension schemes where the employer becomes insolvent, as well as for the PPF.
"Overall, the proposals will have the effect of reducing the protection and rights of DB schemes and the PPF where companies are in financial distress."
The Corporate Insolvency and Governance Bill had its second reading in the House of Lords on 9 June 2020 and is scheduled for House Of Lords committee stage tomorrow (16 June).
