Business

New powers for UK pension watchdog reach agreement

New enforcement powers allow the UK’s pensions watchdog to seek prison sentences if corporate activity damages a workplace pension scheme that has started to affect operations transactions, according to retirement advisors.

According to a Financial Times survey of six of the largest pension consultants providing advice on mergers and acquisitions, at least one deal that has reached the final stages has collapsed.

Potential buyers have also become more wary of companies that have identified benefit plans (DBs), where employers are in a state of funding pension commitments.

John Harvey, partner at Aon, a computational consulting firm, said: “I am aware of a large deal – involving a DB scheme – that has collapsed. “Negotiations are underway. Pension anxiety played a big part in the decision to pull out of this deal.”

The findings provide the first insight into the impact of the Pensions Authority’s new powers designed to provide better protection for pension scheme members. Watchdogs can seek criminal sanctions, including unlimited prison terms and fines, against anyone who engages in activity that causes material damage to program funding. DB pension scheme.

The penalties come in the wake of a string of corporate pension scandals, including BHS, a former high street retailer, and Carillion, the outsourcing conglomerate whose retirement savings come in. Tens of thousands of members are at risk due to unplanned financial resources when these businesses collapse.

Stephen Postill, senior director of Willis Towers Watson, said the new rules appear to particularly affect private equity transactions, which are often heavily leveraged.

“There is definitely an atmosphere of anxiety about transactions,” Postill said. “It is early but I would expect the new regulations to make it harder for a business to sell if they have a substantial pension scheme,” he said, adding: “I would say these powers are a factor.” prevent private equity transactions. ”

Charles Cowling, Mercer’s chief actuary, said new powers are slowing business as “additional conversations and legal advice” are now required.

“The new higher regulation has caused both trustees and employers to express concern about the possibility that these new powers could lead to fines and prosecution,” Cowling said. . “It is slowing down the process because employers have to take extra care to make sure that [pension scheme] the trustees are informed of any corporate activities that may affect the strength of the covenant. “

XPS Pensions said some companies looking to acquire are now “not interested in going near” a business with a DB pension plan, due to future regulatory risks. Robert Wallace, corporate adviser at XPS, said: “I think for sure we will see more companies withdrawing from transactions or not continuing transactions where pensions are involved. “While the risk of imprisonment may be small, it’s not something some buyers are willing to accept in a transaction.”

“We have no intention of prosecuting what we consider normal commercial activity,” the pensions regulator said. However, if someone is proposing to do something more serious about willful or reckless conduct that puts members’ savings at risk, we will not hesitate to use the powers we there to protect members and the Retirement Protection Fund. ”

The UK Venture Capital & Private Equity Association says its members take their “pension scheme responsibilities” seriously and its code of conduct states that they “all are expected to work for the benefit of the companies they support.”

Additional reporting Kaye Wiggins

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