The government is to review legal safeguards preventing unscrupulous employers from walking away from their pension schemes, after complaints the rules hinder legitimate corporate reorganisations.
Pensions Minister Rosie Winterton said on Wednesday her department had begun an informal four-week consultation on Section 75 of the Pensions Act to help ease the cost of company pensions.
“Where government can help ease the burden on employers who run pension schemes at this time we should, but not at the expense of protecting people’s pensions,” she said.
“This is a difficult area, and it may not be easy to find a way to address the issues without creating loopholes.”
The rules are designed to stop companies deliberately reorganising their corporate structure so they can evade their responsibilities for a pension scheme at a subsidiary firm.
They were tightened in 2004 after Dutch shipping firm Maersk tried to wind up a pension scheme at a British subsidiary without putting in the extra money needed to fund the benefits owed to its members.
But the Confederation of British Industry has complained that the obligation to fully fund schemes every time there is a change of sponsoring employer was preventing companies from conducting cost-saving corporate reorganisations.
Winterton said the consultation would seek views on ways of not triggering an immediate funding requirement in reorganisations where the employer remained committed to the pension scheme.
“These proposals are very welcome and would remove funding rules that currently do not improve pension security for employees, but add massive costs to companies looking to restructure,” said CBI Deputy Director-General John Cridland.
The Trades Union Congress said it was concerned that pension protections could be weakened.
“There seems to be a pretty clear choice here. Either companies meet their pension scheme liabilities or they don’t. We doubt that any review can overcome this fundamental point,” said TUC General Secretary Brendan Barber.
Alicie Tse, an analyst at pension consultancy Mercer, said the review had to find a balance between the competing interests of employers and their workers.
“It’s good to have the flexibility for employers, but on the other hand there needs to be sufficient protection for employees built in as well.”
