UK. Watchdog consults on pension abandonment
The Pension Regulator on Thursday repeated its concerns that companies may abandon final-salary pension obligations to cut risks and warned that scheme members’ benefits could be in danger.
The Regulator is to consult the industry about growing interest in companies passing their pension liabilities to outside businesses. It said there are about 10,800 private-sector funds in Britain that pay a defined benefit, usually based on pay levels.
“While the Pensions Regulator welcomes innovation that helps employers and trustees better manage pensions risks, we are concerned about arrangements that may result in the abandonment of the pension scheme,” the organisation said in a document.
“In cases where there is an employer of substance, abandonment (of a pension fund) is not likely to be in members’ best interests and could well prompt consideration of use of regulatory powers.”
The watchdog’s chief executive, Tony Hobman, issued a similar warning in October.
The regulator’s document did not identify by name any companies that it regarded as posing a risk by transferring liabilities to a third party.
Heavy pension deficits, which are treated like debt on corporate balance sheets, are encouraging firms to look for ways to spin off their schemes altogether, such as via insurance.
A number of businesses, such as the Paternoster firm set up this year by former Prudential Plc chief executive Mark Wood, have entered the market for bulk annuities, in which companies pass pension liabilities on to an insurer for a fee. Paternoster said in November it has a client pipeline of about 100 companies.
Consultancy firm Watson Wyatt has estimated that up to half of the pension schemes of firms listed on the FTSE 350 index could be transferred to insurers if the costs of buying bulk annuities becomes more affordable.
The deadline for responses to the regulator’s consultation process is February 9 next year.
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