Mortgage & Financial Services News

Employers are being warned not to cut contributions to their final salary pension schemes if they are still able to pay dividends to shareholders.

The Pensions Regulator has issued a statement to employers sponsoring final salary pension schemes regarding its expectations during the economic downturn.The regulator’s statement - issued to reiterate a message it sent to employers last year - said it recognises that the economic conditions are a concern to employers and reassures them that the current scheme funding regime was flexible enough to cope with the economic downturn.

It said, where a sponsor company is under pressure, there was potential to renegotiate previously agreed plans to repair pension deficits.

The regulator also stated that it will continue to apply the flexibilities in the scheme funding system pragmatically.

TPR chairman David Norgrove explains: “We are sensitive to the pressures many of these employers face in current economic conditions with falling asset prices and increasing deficits.

“There is no reason why a pension scheme deficit should push an otherwise viable employer into insolvency. But the pension scheme recovery plan should not suffer, for example, in order to enable companies to continue paying dividends to shareholders.”

National Association of Pension Funds director of policy Nigel Peaple says: “We welcome The Pensions Regulator’s common sense approach. It is a step forward and provides further recognition that pension trustees and employer sponsors are now operating in a very difficult economic environment.

“However, as we made clear in our recently published action plan, the regulator should take further practical steps to help trustees and scheme sponsors. One such step would be to elongate the trigger point, from 10 years to 15 years, at which further investigations take place.”

This article was first published by IFAonline, part of the Incisive Media group.