While many will be pleased that The Pensions Regulator is taking a tougher line on the dividends companies with pension scheme deficits should pay, Jonathan Stapleton says any action will be difficult to enforce.
Many would agree that it is about time the regulator took a harder line with dividends - intervening when it believes a scheme is not being treated fairly.
Indeed, the regulator's analysis of defined benefit schemes with valuation dates between 22 September 2016 and 21 September 2017 - the so-called tranche 12 schemes - shows many firms could, in fact, pay more into schemes than they do currently.
In total it said around 50% of the schemes it looked at had the resilience to maintain the current level of contributions and many of these had the ability to increase their contributions should circumstances require.
But what is the right level of contributions a company should pay into a scheme? When is a dividend too high and a contribution into a pension scheme too low? At exactly what point should the regulator intervene?
This is when things start to get a little bit tricky… The regulator says, for instance, that the ratio of deficit repair contributions to dividends has declined from 10% to 7%, but is 10% the benchmark we should be aiming for? Or should, as I suspect, some firms be paying out far more and some far less?
There is also the issue of smaller businesses, where many of the most senior staff are often directors, receiving dividends in lieu of pay. Should they see those dividends restricted as part of any clampdown?
And what if a company decides to invest or spend more - and consequently doesn't make any profit at all?
It is right that companies should be paying as much as they can into schemes but trustees are already working hard to ensure this happens - and they are often the people who know the company best.
Any tougher line by the regulator will be a hard one to enforce.
Jonathan Stapleton is editor-in-chief of Professional Pensions
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