Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our daily newsletters. Signing up for any of our section newsletters will opt you in to the daily Coronavirus briefing.
Law360, London (June 23, 2020, 12:45 PM BST) -- Lawmakers have said that Britain's pensions watchdog should be aware of the possibility that "unscrupulous employers" could abuse regulatory breaks introduced during the COVID-19 pandemic.
The parliamentary Work and Pensions Committee said on Monday that it welcomed the flexible approach of The Pensions Regulator during the crisis but that it should be alert to the possibility of employers "taking advantage."
The regulator said in March that employers could suspend deficit contributions for defined benefit pensions for up to three months without the threat of enforcement action.
The cross-bench committee issued the warning as part of a wider report into the work of the government's Department for Work and Pensions.
"A solvent employer is the best way to fund a defined benefit pension scheme," the report said. "We therefore support the more lenient approach taken by The Pensions Regulator during the pandemic to employers seeking to reduce deficit reduction payments for defined benefit pension schemes.
The committee said that after the experience of an earlier committee in dealing with store chain BHS and Carillion, a construction company, the regulator "must remain alert to the risk of unscrupulous employers not in financial difficulty seeking to take advantage."
British store chain BHS collapsed in 2016, leaving a pension deficit of £570 million ($710 million). Carillion went bust in 2018 with nearly £900 million in pension deficits. Bosses at the company were widely criticized for paying dividends to shareholders but failing to keep up pension deficit payments.
Employers are required to pay contributions toward closing their pensions deficits. PricewaterhouseCoopers said in April that British employers had a £290 billion hole in their pension plans at the end of March, an increase of £120 billion since the start of the year.
The parliamentary committee said in its report that "no reasonable person" would expect businesses to also continue paying dividends or bonuses to senior executives if they had suspended or reduced deficit contributions as a result of the pandemic.
"We urge The Pensions Regulator to keep a close eye on this area, and to raise the alarm if it detects abuse," the report added.
The regulator said it had included the warning in its updated guidance for employers.
"We have been clear in our latest guidance that, where employers in financial distress are offered help, it must be balanced with protections for scheme members and not abused," David Fairs, executive director for regulatory policy at TPR, said.
The regulator has said that up to one in 10 employers have suspended deficit recovery payments. But it warned that it does not want this to become the "new normal."
--Editing by Ed Harris.
For a reprint of this article, please contact firstname.lastname@example.org.