UK Employers Voice Concerns Over UK Version Of The PBGC

The Confederation of British Industry (CBI) the UK employers' organisation has dubbed the government's Pensions Bill a "lost opportunity to restore employer confidence in pensions." The employers' organisation published a summary of business concerns as MPs agreed final amendments to

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The Confederation of British Industry (CBI) – the UK employers’ organisation – has dubbed the government’s Pensions Bill a “lost opportunity to restore employer confidence in pensions.”

The employers’ organisation published a summary of business concerns as MPs agreed final amendments to the legislation. John Cridland, CBI Deputy Director-General, said: “The Bill was supposed to restore confidence in pensions, but as far as employers are concerned it is a major missed opportunity. The government has rightly sought to address the needs of scheme members, but it has offered little to meet the equally legitimate needs of employers. Employers have got more concerned as the Bill has travelled through the House and the government has added extra costs onto companies. Amendments made late in the day introduce a whole new cost that firms did not know they would have to bear. Business did win some concessions but these have failed to compensate for disappointments. We still back the Pension Protection Fund in principle but it has become unnecessarily burdensome and still has no government financial backing. Overall, the final Bill has become complex and confusing. It may have the perverse effect of encouraging firms to move away from final salary schemes. It leaves firms needing ministers to give clear public support to employer provision. What a shame.”

The CBI wanted the Bill to include more measures to reduce the burden on employers of pensions red tape additional incentives for smaller employers to invest in employee pensions.

It adds that there continues to be uncertainty over the eligibility rules of the Pensions Protection Fund. To date, the CBI had always believed that the PPF would only be for the schemes of firms that became insolvent after 2005 when the levy takes effect. The government has clarified that this will not be the case, putting the PPF at a disadvantage from the outset. The CBI has supported the PPF on the basis that it would not impose retrospective liabilities. It does not believe firms should have to pick up the tab for firms that have failed before 2005. These firms should gain entry to the Financial Assistance Scheme.

The moral hazard clauses could create greater uncertainty around corporate activity, says the CBI. It says the CBI has lobbied Government with some success to provide more certainty over the clauses and to ensure that new legislation does not impinge on legitimate corporate activity, therefore capturing only deliberate and unscrupulous attempts to avoid pensions liabilities. Despite this, it says, there continues to be uncertainty over how the clauses will operate in practice, particularly with reference to the clearance procedure. For example, the CBI says it has lobbied to ensure that companies and their advisers can get greater certainty from The Pensions Regulator that they will not be caught by legislation in the future and to offer an opportunity to companies that they are acting in ‘good faith’.

“We still have concerns about the fact that there will be no specific time frames on how quickly the regulator must respond, or on the resources the Government is going to make available to the regulator to provide this service,” says a CBI spokesman. “There is also uncertainty over the strength of any clearance, given that if there are changes in circumstances, clearance may not remain valid.

Costs of PPF should be shared, not all loaded on employers, says the CBI. The Bill is unclear whether employers will have the opportunity to share the cost of the levy with all scheme members. The CBI believes it is right that the cost of the fund is shared between employers and scheme members. Employers should have the ability to pass on the non-risk-based amount of the levy to all scheme members where appropriate (active, deferreds and pensioners), it says. The CBI remains concerned that the government will not act as guarantor of last resort. This could place an open-ended liability on many firms with defined benefit provision. Nevertheless, says the CBI, the government has finally recognised the need for the levy to be primarily risk based.

Member Nominated Trustee rules could gridlock decision making, says the CBI. The government announced at the TUC conference a requirement for 50 per cent of trustee board members to be member nominated. This raises concern of union domination on these boards and the possibility of gridlock in vital areas of decision making. It is vital, says the CBI, that the government ensures firms retain the casting vote on any trustee board.