Sweeping new rules designed to prevent a repeat of the BHS pensions scandal will cost businesses £30billion and push hundreds of businesses to the brink of collapse, the government has warned.
Industry consultant LCP says proposals to make end-of-career wage pensions more secure will throw swaths of the private sector into chaos by forcing employers to pump billions of pounds into pension schemes. underfunded retirement.
He warned that the plans ultimately increased the risk of bankruptcy for 200 businesses.
Jonathan Camfield, Partner at LCP, said: “While everyone shares the goal of ensuring the company’s pension promises are delivered, these proposed regulations do so in an unnecessarily rigid way.
“The result will be an unnecessary increase in the amount of money employers are expected to invest in pension schemes, to the detriment of their ability to invest in their own future.
“And for some employers, these increased demands could be the final straw that pushes them into insolvency.”
The changes have been drawn up by the Department for Work and Pensions (DWP) and are intended to prevent a repeat of the scandals that have engulfed Carillion and BHS.
Both companies collapsed with black holes in their pension funds, leaving them unable to deliver on their promises to pay workers a fixed income for life after retirement.
Carillion retirees were eventually bailed out by the industry’s lifeboat, the Pension Protection Fund. Former BHS owner Sir Philip Green has handed over £363m to fill a loophole in the scheme run by the bankrupt department store.
The DWP’s proposals will force companies operating defined benefit schemes – including end-of-career pensions – to meet funding targets and switch to a low-risk investment strategy by the time most members are retired.
But LCP said the plans would force many companies that already have credible deficit reduction plans to inject extra cash sooner than needed, at a time when many are already facing skyrocketing energy and wage bills.
The plans would also prevent schemes from having the flexibility to take even modest risks – such as investing in stocks – by the time most members are retired.
Mr Camfield said the rules run counter to the government’s aim of boosting growth. He added: “It doesn’t look like a united government.”
A consultation on the proposals ends this week. The rules would apply to around 5,000 defined benefit schemes representing almost 10 million workers and pensioners, with outstanding pledges of more than £1.5trillion.
The government has set an ambition to bring the new regime into effect by next October, although delays could push it back until 2024.
One official said when the DWP was led by Therese Coffey – who became health secretary in a cabinet reshuffle early last month – he seemed uninterested in changing plans.
The official said: “They weren’t very committed. I haven’t spoken to the new team yet. [under Chloe Smith].”
The Society of Pension Professionals, which represents advisers and trustees, also said it was very concerned about parts of the proposals.
Fred Emden, Managing Director, said: “This low-risk way of running a system will be the right strategy for many systems, but it won’t be right for everyone. Reducing flexibility will stifle innovation, and for some systems it will will lead to worse outcomes for members and higher costs for businesses.”
Mr. Emden also said the proposed regulations were unnecessarily restrictive. He said: “By trying to weed out bad behavior from a minority, they will make it worse for some regimes.”
A DWP spokesperson said: “Our intention is to have better and clearer funding standards, while retaining the strengths of a flexible, scheme-specific approach. It’s not about ‘one size fits all’, nor about micromanagement schemes. Each plan will be treated on its own merits.
“Millions of people rely on defined benefit plans. While most defined benefit plans are well managed, best practices are not universal. Our new measures will help ensure their long-term protection. »
The UK’s biggest pension funds were plunged into crisis last month when a spike in borrowing costs following the Kwasi Kwarteng mini-budget pushed many to the brink of collapse.
The funds, which used products known as liability-driven investments to protect themselves in an era of low interest rates, faced sudden calls for funds when the value of government securities suddenly rose. dropped, forcing them to top up their warranty.
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