Regulatory System Is Too Slow and Lacks Transparency Says Dawson Chairman
16 August 2012 (PLANSPONSOREurope.com) – The processes of the UK’s pension regulatory system are too slow and lack transparency, David Bolton, Chairman of Dawson International, has told PLANSPONSOR Europe.
As the cashmere manufacturer officially called in the administrators yesterday due in part to a failure to reach agreement with the Regulator and the Pension Protection Fund (PPF) about entering its pension plan into PPF, Bolton told PLANSPONSOR Europe a lack of transparency and an unnecessarily lengthy regulatory process had cost the firm dearly.
Bolton said: “The two things that are needed are transparency and speed. We started talking to the Pension Regulator about four years about some form of entry into PPF. It seems that Regulator and the PPF are there to try and prevent entry rather than help entry. They put all the barriers in place. They go through what seems to be a rigorous and unnecessarily lengthy process to get you to the doors of the PPF only to find that if you got there two years earlier, you might have been able to afford to get in, but four years later and £5m of PPF levies and fees later, you haven’t got the wherewithal to pay the admittance fee, and that’s the issue here.
“It is a sad state of affairs. They prolong the agony in the early days by going through due process to see whether it is affordable and whether there is a long-term recovery plan available and by the time they determine that it isn’t it’s too late – you have either spent all your money on fees and contributions so that you can’t afford or you find the PPF aren’t sufficiently transparent to tell you how to get it in anyway.
“We thought the priority here was to offer more than the insolvency value and there was a commission to work out the solvency value. It was done by professionals. It was sponsored [by] the trustee. We got that figure and we made three attempts at getting the best offer to PPF, and every time, it wasn’t enough. It was never clear what was enough. We were told that it had to be significantly more than the insolvency value. We were told that all parties needed to take some pain and we had to have regard to the Section 75 deficit.”
The PPF has hit back. Its Executive Director for Financial Risk Martin Clarke said: “We exist to protect people’s pensions in the event of company insolvency and inadequate pension scheme funding and our costs are met by all eligible pension schemes.
“On rare occasions, we will – alongside the Pensions Regulator – consider transactions which allow a company to continue to operate with the pension scheme being taken on by the PPF.
“We do not enter such arrangements lightly and only agree them if a number of stringent tests are met. Unfortunately, in this case, the offers made to take on the pension scheme, given the size of the deficit in the scheme, were inadequate.
“In all cases, we apply clear and consistent principles, taking into account the likely impact they may have on pension scheme members as well as the cost to the other pension schemes which pay our levy.
“We will be working with the administrators to make sure that the interests of the Dawon pension scheme members are best represented.”
And Malcolm McLean, a consultant at Barnett Waddingham, warns Dawson International is not likely to be the last plan sponsor in the UK to fall victim to final salary liabilities it cannot meet.
“Dawson is not the first and probably won’t be the last company to come adrift as a direct result of its pension legacy.
“Reducing the size of the company’s operations and its attendant work force doesn’t cancel out all the pension liabilities that have built up over the preceding years. In fact, those liabilities are likely to grow as more and more former workers with preserved rights within the scheme reach retirement age and claim their pensions whilst improving longevity rates, mean[ing] they and existing pensioners increasingly live longer lives.
“The financial significance of a final salary scheme means employers need to be more proactive in managing their pension scheme liabilities. They should establish a clear strategy to de-risk the scheme over time. The Dawson International case has shown how deficits can quickly grow out of control particularly where the sponsoring employer is shrinking. Some of the more sophisticated de-risking techniques that have previously only been available to the largest employers should be considered, in a proportionate way, by all employers.”