The research identified twenty ways in which scheme surpluses have been exploited. These include:
• Employer now has the scheme bear administration costs, etc.
• Employer “loads” administration cost recovery against the scheme
• The scheme receives inward bulk transfer from other underfunded scheme/s of the employer
• The scheme assumes hitherto unfunded pension obligations
• The scheme assumes health, death-in-service, accident, redundancy benefits hitherto met from payroll
• “Augmented” benefits replace bonus and golden hellos
• A promise of generous bulk transfer increases saleability and sale price of divested subsidiary
• Scheme makes “investment” loan to (external) buyer of asset from employer
• Scheme makes “investment” in securities of business sold-off by employer
• Scheme enters into sale and leaseback of property in favour of business sold-off by employer.
The research also discovered fifteen ways of shedding or sidestepping a deficit. These include:
• Large, excessive dividends
• Interest-free loans granted to non-scheme affiliates
• High interest bearing loans received likewise
• “Management fees” payable likewise
• Transfer pricing prejudice intra-group
• Creation of “central” purchasing or sales to cream off margin likewise.
The study is particularly topical, given what has been happening at companies like BHS, Halcrow and Tata Steel – with allegations of excessive dividends paid to proprietors, bludgeoning pensioners into accepting lower benefits, proprietors distancing themselves from legal liability and incoming proprietors seeking to avoid liability altogether.
Professor David Blake, Director of the Pensions Institute, said: “A pension scheme is like a coach and horses carrying gold on a long journey through hostile territory in a Wild West movie. Despite the determination of the trustees to navigate a safe journey over the rocky terrain and the bravery of the Pensions Regulator as outrider, the coach with its valuable bullion is a sitting duck for corporate ingenuity”.
Keith Wallace added: “Some of these things have been going on for forty years. It is naïve to think that they have now stopped, especially given the current enormous size of pension deficits. The Pension Protection Fund faces a huge moral hazard as a result of the practices employed by some companies in this country”.
The Pensions Institute calls on the government to establish an effective Early Warning Programme (similar to that operating in the Pension Benefit Guaranty Corporation, the US equivalent of the Pension Protection Fund) in which The Pensions Regulator actively seeks out and starts negotiations directly with weak employers. This would enable the regulator to pick up early signs of the kind of practices identified in this report. An extra incentive would be to adopt the PBGC’s ability to claim up to 30% of a business’s net worth in the most extreme cases of abuse. This would give greater assurance to beneficiaries that energetic and robust actions are taken on their behalf by the regulator.
To download the report Milking and Dumping please click here
|
