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minister considers relaxing winding up rules
By Sophie Baker |
| Pensions
minister Rosie Winterton, has announced that the Government will consider
changes to the Section 75 of the Pensions Act 1995, which compels
any business winding up a pension scheme as part of a corporate restructuring
or demerger exercise to fully cover its liabilities. As stock markets have fallen, pensions shortfalls have been increased, and Section 75 has become more of an issue for businesses. Winterton hopes that the moves will ease the burden on scheme sponsors which are under increasing strain in the current economic climate. The original Section 75 ruling was amended and adopted on an emergency basis as plunging stock markets and falling gilts yields revealed record deficits at UK companies. The legislation was enacted in 2004, and closed a loophole that had cost about 125,000 pension scheme members all or part of their retirement funds. The announcement has been welcomed by the industry, and Joanne Segars, chief executive at the National Association of Pension Funds (NAPF), said: “The NAPF has been asking for a review of the Section 75 regulations for some time, so we welcome this consultation on what has been a long running concern for both employers and pension funds. “Last year, defined benefit pension funds who were still open to new members told us that relaxing the way these regulations worked in practice was the most important action Government could take in helping them run their schemes.” Segars added that it is the NAPF’s view that these changes will help recognise the right of employers to “undertake corporate transactions and restructurings without adversely affecting member protection”. Mark Duke, head of pensions at consultant Towers Perrin, is also positive about the potential changes. “The current problem with Section 75 is that companies can restructure or acquire businesses and trigger the need to make unnecessary and large cash payments to the pension fund,” he explained. “The regulations should be underpinned by the principle that cash is needed only where the position of the fund is weakened by the company’s actions. Currently the regulations are indiscriminate. If changes can be made that differentiate between circumstances on grounds of need, that will be a good thing,” he concluded. - Pensions Age November 2008 |