The Prime Minister has pledge to stop bosses taking excessive remuneration from companies with at-risk pension schemes by introducing tougher new rules this spring.
Writing in The Observer, Theresa May said new rules on would tackle the problem of boardroom excesses, highlighted by the rising dividends and big executive payouts at Carillion ahead of its collapse with a £580m pension deficit.
May said: “In the spring, we will set out new tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end.”
But experts say the Government’s Green Paper on company pensions published in 2017 played down the need for significant action, because it describes no clear causal link between companies making excessive payouts and those with big deficits. Carillion had paid a rising dividend in each of the 16 years of its existence, including in the payout before its collapse earlier this month. Around 28,000 members of its pension scheme now face reduced payouts as the scheme is expected to be rolled into the PPF.
The Green Paper says:
- Whilst clearly some employers are finding that the costs of supporting their DB scheme is impacting on their ability to invest, grow and pay dividends, there is no evidence of an imminent crisis affecting the sustainability of DB pensions generally, and in most cases members are only at risk if a sponsoring employer collapses.
- It is not straightforward to identify a clearly defined segment of schemes or employers that would warrant targeted policy intervention, based on funding strength and member security. There are schemes that are poorly funded and with weak sponsors and so have a high likelihood of PPF entry in the future. However, there are no easily identifiable common characteristics across these schemes.
Royal London director of policy Steve Webb says the Government will find it difficult to create a workable solution to the problem and real change is years away because it will require new legislation. Webb says options open to the Government are allowing executive bonuses to be clawed back by liquidators in the event of a corporate failure; giving regulators power to challenge firms who ask for excessive periods to pay off pension deficits whilst paying out large dividends or executive bonuses and allowing regulators to block takeovers where it is thought these could reduce the chance to pension promises being kept.
Webb says: “The Government is right to criticise firms which pay excessive bonuses or put large dividends ahead of plugging the hole in the company pension fund. But they will find it difficult to convert this concern into workable policies, and there is no ‘silver bullet’ solution. Every company is different, and a dividend payout which looks excessive at one firm may be quite sustainable at another. Despite all the concern about the BHS case, nothing has so far changed, and we are probably years away from new legislation coming into force.”
