New powers for the Pensions Regulator would be restricted to blocking the transfer of company schemes to pension fund operators that are not regulated by the Financial Services Authority, according to a consultation paper.

The paper issued by the Department for Work and Pensions would also allow the regulator to prevent corporate restructuring when pension fund liabilities are to be transferred to businesses with few or no assets.

The proposals are aimed at some of the innovative business models that have emerged to fill the gap when employers look to sever their link with pension funds. The DWP is concerned that in some cases this could be “to the possible detriment of scheme members and outside the regime regulated by the FSA”.

But the DWP proposals are far more limited than the draconian measures feared by some business groups.

The CBI employers’ organisation, which had initially registered its concerns about the new powers, said it “welcomes this clarification …powers for the regulator will only be used under certain specific circumstances”.

The need for new powers became apparent several months ago when Pensions Corporation moved to acquire Telent, the rump business of GEC Marconi, which was sold to Ericsson in 2005. Pensions Corporation made it clear that it had no interest in running Telent but wanted to manage the pension scheme and benefit from any surplus that arose. As a sale condition, GEC Marconi shareholders agreed to put some sale proceeds into the scheme and set aside a further £500m ($991m) in an escrow account.

Mike O’Brien, pensions minister, said he had met business groups to reassure them that the intentions of the new powers were narrow. “What has become clear is the development of this business model which treats pensions as a commodity,” Mr O’Brien said.

Industry had been alarmed by the proposal that the regulator be allowed to intervene even when he could not demonstrate that an act was not undertaken “in good faith”, a restriction specifically contained in previous legislation.

Businesses have also been concerned because the new law, not yet passed, has been made effective from April 14.

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