LONDON, ENGLAND - APRIL 25: A woman walks out of the British Home Stores on Oxford Street with bags of shopping on April 25, 2016 in London, England. High street retailer British Home Stores (BHS) is filing for administration today, threatening almost 11,000 jobs. BHS currently has 164 stores across the UK since it opened its first store in Brixton, London in 1928. (Photo by Chris Ratcliffe/Getty Images)
The inquiry follows a three-month investigation into the failure of BHS, the department store chain © Getty

An influential committee of MPs will probe whether regulators should be given more powers to prevent companies from evading their pension responsibilities.

The Work and Pensions committee announced on Monday that the adequacy of the Pension Regulator’s powers would form part of its new inquiry into final salary-type workplace pensions.

At present, about 11m people are relying on a final salary, or defined-benefit, pension, run by a private sector company, to deliver their retirement income.

But the funding of these plans has become increasingly stressed, with 5,000 or the 6,000 private sector DB schemes now in deficit to a combined total of more than £900bn, according to Hymans Robertson, the consultancy.

As part of its inquiry, the committee will look at whether the regulator should be taking a “stronger and more proactive” approach with companies that are still running these traditional workplace pensions.

This includes examining the regulator’s powers over recovery plans, which determine how much an employer pays to fill a pension funding hole.

The inquiry will also ask whether companies should be forced to seek clearance from the regulator before doing deals with other businesses with pension schemes.

The inquiry follows a three-month investigation by the committee into the failure of BHS, which concluded that the “systematic plunder” of the retail group put the pensions of about 20,000 current and former staff at risk.

“The lessons of BHS must be learnt,” said Frank Field, chair of the committee. “This may mean strengthening the powers and resolve of the Pensions Regulator to act early, quickly and firmly with those who seek to avoid their pension responsibilities.”

The inquiry, which is cross-party, will also examine the robustness of the Pension Protection Fund, which pays compensation to members of schemes when their employer fails.

The fairness of the annual levy imposed on businesses to fund the PPF will also come under scrutiny.

The committee will also ask whether an “an exceptional approach” is required on pension scheme funding because of low interest rates, which have caused deficits to balloon.

Mercer, the consultancy, has estimated that pension liabilities for FTSE 350 companies have increased 44 per cent since 2010 compared with a 10 per cent rise in market capitalisation.

Despite making £75bn in contributions to their pension schemes during the past five years, deficits have grown by £34bn, added Mercer, as the rise in assets was outpaced by growth in liabilities.

“We need a considered rethink on how to respond to pension scheme deficits,” said Kate Smith, head of pensions at Aegon, a pension provider. “Allowing employers to cut back future benefit increases, even with Pension Regulator approval, is radical. We mustn’t allow any such moves designed for extreme circumstances to set defined benefit promises on a slippery slope.“

The committee will accept evidence on its inquiry until September 23.

Get alerts on Pensions crisis when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article