Pensions shouldn't be sacrificed for dividends, says regulator

18 February 2009 / by Rachael Stiles
Employers who are being impacted by the current economic climate should not favour paying dividends to shareholders over final salary pension schemes, the Pensions Regulator has said.

David Norgrove, chairman of the Pensions Regulator said: "Trustees of pension schemes in deficit are unsecured creditors of their sponsoring employer. We are sensitive to the pressures many of these employers face in current economic conditions with falling asset prices and increasing deficits."

But pension schemes should not be "disadvantaged", the regulator said, and trustees should understand what is reasonably affordable for their sponsor.

The Pensions Regulator has the authority to force companies to continue paying into their pension scheme if it suspects they are trying to divert funds away from the scheme.

"There is no reason why a pension scheme deficit should push an otherwise viable employer into insolvency." Mr Norgrove added. "But the pension scheme recovery plan should not suffer, for example, in order to enable companies to continue paying dividends to shareholders."

The new regulations will allow companies to stretch out payments so that they can restore pension schemes. It will also reduce annual contributions for companies that are at risk of failure because of retirement costs.

Those companies which are struggling will be able to take part in a 'recovery plan', which means they can take up to 10 years to ensure the pension scheme has sufficient funds to cover its retirement funds obligations.

Meanwhile, the National Association of Pension Funds has proposed new plans to reform the Pension Protection Fund (PPF) levy, in order to "give more certainty to pension schemes", according to NAPF director of policy Nigel Peaple.

"We recognise the important role played by the PPF levy in guaranteeing member security and promoting confidence in pension provision." Mr Peaple said. "However, we must make sure it does not undermine current pension provision by placing too great a burden on well-funded schemes, especially where they are backed by a strong company."

© Fair Investment Company Ltd