Today the Pensions Regulator (TPR) issued a statement to employers who sponsor defined benefit (final salary) pension schemes that it will look closely at company plans to cut cash contributions to schemes with a funding deficit if they are still paying dividends to shareholders.
The statement also says that TPR recognises that current economic conditions are of real concern to employers and it seeks to reassure scheme sponsors that the current scheme funding regime is sufficiently flexible to cope with the economic downturn. Where a sponsoring company is under financial pressure, there is potential to renegotiate previously agreed recovery plans and trustees (who are unsecured creditors of the sponsor) should be in a position to understand what is reasonably affordable for their scheme’s employer. Trustees need to assess whether the problem is short-term or more significant, which TPR accepts is a difficult assessment to make. However, TPR is keen to ensure that all unsecured creditors must be treated fairly and that the pension scheme should not be disadvantaged (in particular, as aforementioned, in comparison to shareholders).
TPR will maintain what it describes as its pragmatic flexibility in regulating the scheme funding regime and will continue to look for outcomes that are in the best interests of both employers and the schemes they sponsor.
Commenting on the statement, David Norgrove, Chairman of TPR, 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. There is no reason why a pension scheme deficit should push an otherwise viable employer into insolvency but the pension scheme recovery plan should not suffer, for example, in order to enable companies to continue paying dividends to shareholders.
Any employer who believes that an existing recovery plan is at serious risk of jeopardising the company’s future health or solvency should discuss this with their pension scheme trustees and we would encourage schemes and sponsors to talk to us if they have concerns.”
Trustees and employers should remember that if any changes are made to the scheme’s recovery plan, TPR should be informed.
View the full statement. (pdf 262kb)