In its current form, the PLSA believes that the Bill opens the door for bank lenders to be higher up the pecking order than employees’ pensions when it comes to recovering cash from a company insolvency.
In a bid to address this, earlier this month, the PLSA wrote its letter to Mr Scully saying it believes a number of small, but significant, amendments to the wording of the Bill could rectify these issues without compromising the intentions of the Bill. Furthermore, the PLSA also briefed MPs and Peers on the issue ahead of the Bill’s second reading in both the House of Commons and House of Lords.
Under current rules, debts owed to a DB pension scheme, as unsecured creditors, are paid out after secured creditors in an insolvency situation, unless the scheme has a form of contingent security. When a scheme sponsor becomes insolvent, the majority of the deficit will often remain unpaid with the Pension Protection Fund (PPF) picking up the responsibility for paying out schemes’ member compensation.
However, PLSA members have said that the Bill proposal for a new company moratorium – that allows up to 40 business days of protection from legal processes against a company, including those commencing a claim – will make recovering unpaid pension contributions even more difficult than the current arrangements.
The PLSA is suggesting that changes to the Bill include:
• Limiting the bank debts that gain super-priority to those that become due and payable on a non-accelerated basis during the moratorium.
• Narrowing the definition of financial arrangements that gain super-priority so that it only covers the bank debts and does not extend to all financial arrangements and lending.
• Amending legislation to provide for a PPF assessment period to be triggered where a company enters a moratorium.
Nigel Peaple, Director of Policy and Research, PLSA, said: “We and our members fully appreciate the need for emergency protective measures to help companies survive the unprecedented business disruptions from Covid-19. However, the new proposals will have unintended – but very serious – consequences for underfunded pension schemes where the employer becomes insolvent, as well as for the Pension Protection Fund (PPF).
“Overall, the proposals will have the effect of reducing the protection and rights of Defined Benefit (DB) schemes and the Pension Protection Fund where companies are in financial distress.”
PLSA BEIS Insolvency Bill Letter
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