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Fears over regulator's power

By Louise Greenwood
BBC Radio 4's Money Box

The Pensions Regulator wants funds to eradicate their deficits

Employers groups have voiced concern over the new powers being exercised by the Pension Regulator to compel companies to make up shortfalls in their pension deficits.

Lingerie manufacturer Sherwood group PLC has became the first firm in the UK to have its business plans put on hold by the regulator until it addressed the shortfall in its company pension scheme.

Sherwood had hoped to stage a "share buyback" but was told it should first make additional payments into its £8.6m pension hole.

Sherwood Chief Executive Carol Duncumb told BBC Radio 4's Money Box programme she feared many other firms could find themselves in a similar position.

"If they have an exposure to a pension deficit, which many PLCs have, then they have a wider obligation which is underpinned by the power of the regulators office.

"We do as a board feel a little bit hamstrung now. On the other hand I realise it is a debt on the balance sheet which needs to be addressed."

'Extensive powers'

The regulator took office last April and can oblige firms to postpone mergers and acquisitions and dividend payments to shareholders if it feels pension deficits are not being taken into consideration.

If the problem was soluble without these powers, we wouldn't be necessary
June Mulroy, Pensions Regulator

Since April it has negotiated successfully with around 100 other companies but Sherwood is the first where it has forced a company to address its pension problems ahead of any other business activity.

But, playing down the Pension Regulator's new found influence, its Executive Director June Mulroy told the programme: "We are not here to try and stop companies paying dividends at all."

But she added "If the problem [of pension deficits] was soluble without these powers, we wouldn't be necessary."

Legal action

But Francois Barker, of the Pensions Strategy Group at the Confederation of British Industry (CBI) told the programme: "Recent legislation... gives the regulator very, very extensive powers to intervene."

He said the key was how long companies would be given make up their deficits.

If the numbers were big enough, court action couldn't be ruled out
Francois Barker, CBI

"Pension promises were always set up as long-term vehicles, and that ought to be the principle that goes into the timescales that goes to make up the deficit."

Fifteen firms listed on the FTSE 100 have pension deficits equivalent to more than 10% of their market value, including Corus and British Airways.

Mr Barker did not rule out the possibility that some may mount a legal challenge if they were compelled to put their pension deficit ahead of other business activity.

"Ultimately, if the regulator came up with a decision that was completely unattractive to a large corporate, and if the numbers were big enough, court action couldn't be ruled out."

BBC Radio 4's Money Box was broadcast on Saturday, 14 January, 2006, at 1204 GMT.

The programme will be repeated on Sunday, 15 January, 2006, at 2102 GMT.

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