Speaking at the European Pensions 2006 conference, Pensions Regulator chief executive, Tony Hobman warned trustees to be particularly cognizant of deals that would effectively separate the plan from the original sponsor.
“Trustees should apply a high level of scrutiny to any such transactions which are brought to them,” Hobman said in a Web statement .”They must presume from the start that it is unlikely to be in the best interests of their members to break the link with an employer of substance, except by paying the cost of buying out the benefits with a regulated insurance company. Once the link to any employer is removed, the trustees will have lost an important backstop to protect scheme members if the pension fund runs into difficulties in the future.”
According to the statement, the Pensions Regulator plans to consult on this issue by the early part of 2007. It will also consult on new guidance to help plan trustees weigh the proper value of the support given to a fund by an ongoing employer, when considering corporate transactions which would remove that support.
David Norgrove, Pension Regulator chair, asserted in a separate Web statement that plans should be able to be run in such a way as to reduce risks both to the employer and members without breaking the link to a corporate plan sponsor.
“While we generally welcome innovation that helps employers and trustees manage risks better, we do not consider that abandonment of a scheme by its employers is usually likely to be in the best interests of scheme members unless the full section 75 debt is paid,” Norgrove said in the statement . “Our position remains that the best means of delivering pension scheme members’ benefits is for the scheme to have the continued support of a viable employer. Trustees should be able to secure innovation and improvement in the areas of administration and investment without breaking the link with the employer. Therefore, promises of access to such better services are not seen as relevant factors for trustees to consider in making decisions on transactions that break the link with the employer. “