The UK government has been forced to amend proposals under which The Pensions Regulator and an industry lifeboat fund would have been locked out of rescue talks involving companies with underfunded retirement schemes.
Emergency proposals laid before parliament last month would have reduced the influence of both TPR and the Pension Protection Fund, the lifeboat scheme, in recovering debt owed to a company retirement plan by a sponsoring employer.
Since the Covid-19 pandemic, thousands of businesses with underfunded pension schemes have struggled to meet their debts, including scheduled payments to repair pension funding deficits.
Temporary measures contained in the Corporate Insolvency and Governance Bill, introduced last month, aimed to ease the burden on distressed companies by allowing them to shield from legal action and debt repayments for up to 40 days, while working on a rescue plan.
But the pensions industry had warned ministers that the proposals would have “serious” unintended consequences for scheme members, because of the weakened influence of trustees and the PPF in the debt recovery process and the elevation of banks, above pension schemes, as unsecured creditors.
On Friday, the government said it had “listened” to concerns and would extend the bill so that both the PPF and TPR would be able to play a “key role” in ensuring that the interests of pension schemes were “fully taken into account” in any restructuring or rescue plan.
“This amendment is a major recognition by the government that the Insolvency Bill could have put pension schemes at the back of the queue when a company was in financial difficulty,” said Sir Steve Webb, former pensions minister and now partner with Lane Clark & Peacock, the actuarial consultants.
Oliver Morley, chief executive of the PPF, said the amendments were important, “not least because they make sure we continue to have a seat at the table and can work to influence the outcome and mitigate the risks for ourselves and those we stand to protect”.
Since 2005, the PPF, which is predominantly funded by an industry levy, has recovered around £3bn from companies that have gone bust by being involved in restructuring talks as an unsecured creditor.
The development came as TPR revealed this week that employers sponsoring around 10 per cent of the UK’s 5,500 defined benefit schemes, had sought pension payment holidays because of Covid-19 pressures.
Baroness Ros Altmann, who has pushed for amendments to the Insolvency Bill said she welcomed the changes but remained “concerned” as to whether the protections for pension schemes were strong enough.
“We hope to persuade the government to ensure that any assets pledged to a pension scheme cannot be sold during a moratorium without approval of the PPF and also ensure that financial operators cannot game the PPF by moving themselves into ‘super-priority’ status, leaving other unsecured creditors such as pension schemes with far less resources on insolvency,” said Baroness Altmann.
The bill returns to the Lords next Tuesday.