Page last updated at 15:23 GMT, Monday, 14 April 2008 16:23 UK

Pension buy-outs face regulation

David Norgrove, chairman of the Pensions Regulator
David Norgrove, chairman of the Pensions Regulator

Pension schemes which are bought up by other companies will soon have greater protection from the Pensions Regulator.

The government will give the Regulator powers to insist that pension schemes that are bought out by specialist companies should be topped up.

The past few years have seen a growing trend for buy-out firms to take over unwanted pension schemes to make a profit for their investors.

Last year, the Regulator intervened in a takeover of the Telent pension fund.

Mike O'Brien, the minister for pension reform, said he wanted to ensure that members' interests were protected.

"I want to guard against pension schemes simply being treated as a commodity to be bought or sold," he said.

"I am concerned some emerging business models might not give the same protection for pension schemes as traditionally provided by a sponsoring employer or insurance capital," he added.

New powers

The Pensions Regulator will be given the authority to demand that buy-out companies, if they reduce the level of security for their newly-owned pension schemes, can be forced to make extra contributions to those pension funds.

These measures will provide extra safeguards for occupational pension scheme members

In particular, the government is worried that if a company is taken over to gain control of its pension scheme, the original employer could then be sold off, leaving the pension scheme with less support than before.

The new powers were welcomed by the Unite trade union, which represents some of the staff employed at Telent.

The company was the remnant of the old GEC and Marconi industrial empire, which was bought by the Pension Corporation late last year.

"These are precisely the sort of protections Unite has been campaigning for," the union said.

"These measures will provide extra safeguards for occupational pension scheme members and their pension savings," it added.


The purchase of Telent crystallized some of the potential problems in pension scheme buy-outs.

The Regulator was worried that the new owner might try to alter the scheme's investment policy, to trigger the release of 514m that had previously been set aside in a special escrow account for the benefit of the scheme.

In a report published last Friday, the Regulator was scathing in its analysis of Telent's failure to appreciate that there was an "acute conflict of interest" between its desire to run the pension scheme's investment strategy for the benefit of its investors, and the interests of the scheme's members.

"Nothing that Pension Corporation said or did gave the regulator any comfort that the conflicts the regulator had identified were likely to be avoided by Pension Corporation, or even that they were properly understood," it said.

Telent has now agreed that it will not appoint anyone to the board of trustees of the pension scheme without the Regulator's permission, and that in any case, the majority of trustees will be scheme members and independents.

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