The UK pensions regulator has voiced concerns that new ways of managing pension schemes may lead to scheme being abandoned, and will be investigating the matter in the coming months.
Speaking at the European Pensions 2006 conference, Pensions Regulator chief executive Tony Hobman warned that corporate transactions that transfer pension schemes to new vehicles could result in employers abandoning schemes without fully meeting their obligations to members.
He pointed to the practice of proposed corporate transactions involving pension schemes where the primary intent behind the transaction is for the employer to abandon the pension scheme without paying the s75 debt. These transactions would transfer pension schemes to new vehicles involving a nominal sponsoring employer and effectively leave the scheme without the support of a substantive ongoing employer.
Trustees should apply a high level of scrutiny to any such transactions which are brought to them, Mr Hobman said. And they must presume from the start that it is unlikely to be in the best interests of their members to break the link with an employer of substance, except by paying the cost of buying out the benefits with a regulated insurance company.
He added that, while the regulator welcomes innovation in the way pension schemes are managed, it believes that the best way to deliver benefits to members is normally for schemes to have the continued support of a viable employer.
The regulator is now planning to consult on this issue by the early part of 2007. It will also consult on new guidance to help scheme trustees weigh up the proper value of the support given to a fund by an ongoing employer, when considering corporate transactions that would remove that support.