BVCA Chief Executive, Simon Walker, writing in the Financial Times
Let us face it, pensions regulation is a difficult subject. Worthy but dull. Even as a pension fund trustee my eyes glaze over at the phrase.
Of course, protecting hard-earned pension rights is important. We all remember the agony of the pensioners whose fund was plundered by the late Robert Maxwell. It is understandable there should be measures in place to protect the security of those workers lucky enough to have a pension based on their final salary.
But the latest proposals to extend the powers of the pensions regulator are a bridge too far. The announcement that the government will be slipping extensive new powers into the pensions bill via an amendment in the House of Lords is bad news for British business, and even worse news for many employees.
It also reflects a growing trend of regulatory creep - the belief that every problem in society can be solved by regulation, and by providing ever more authority to undoubtedly well-intentioned and often highly qualified individuals whose decisions are not subject to democratic review.
The Pensions Regulator already has ample powers to stop a company emasculating its assets in order to avoid its pension liabilities, backed by the sanction of issuing a "contribution notice", in effect ordering an employer to top up a pension scheme when it is affected by normal corporate activity including sales of businesses, inter-company loans and public to private transactions.
The new measures would extend this power by allowing the Pensions Regulator to take retaliatory action against any business decision that could conceivably be seen as having an adverse impact on a company's defined benefit pension scheme. So British Airways, say, where a sizeable final salary plan has been in deficit for much of the past decade, could have needed the pensions regulator's approval to sell its low-cost subsidiary Go, or reduce its stake in Iberia, if it were to avoid the risk of being told it had to compensate the pension plan in some way.
In the case of private equity - where Britain accounts for 60 per cent of the European market - there is a further wrinkle. Buy-out houses run separate investment funds that are ring-fenced. This allows them to enter long-term commitments to fix broken companies and help others to grow. The new measures would, in theory at least, significantly extend the powers of the pensions regulator to treat wholly unconnected businesses as if they were owned by an oldfashioned Hanson-style conglomerate. A pension deficit in one company might have to be made good by contributions from another unconnected portfolio company.
Such proposals would be another damaging blow to the UK's international competitiveness as a centre for private equity. Buyout houses make investments on behalf of foundations, insurance companies and, particularly, pension funds with a view to selling the repaired company on at a profit to investors. No one will be keen to encourage their clients to put money into companies that could be jointly and severally liable for potentially massive pension fund liabilities in an unlinked business.
The new powers of the pensions regulator are likely to tip the balance away from informed risk-taking to absolute risk-avoidance, and, as we teeter towards recession, it is likely to be former manufacturing companies with a high pensioner base that suffer. Often these companies benefit most from the productivity benefit private equity brings. But under the pension regulator's proposed new powers, if those companies have a pension fund deficit it is unlikely any buyout house would touch them with a bargepole. In addition to damping corporate activity, the new measures will put another nail in the coffin of final salary pension schemes, further widening the yawning gap between civil service pensions, protected by the politicians and paid for by the taxpayer, and those available to the unlucky individuals in the private sector.
Of course, it can fairly be argued that the pensions regulator has not yet abused his authority and is unlikely to do so. But lawyers and the courts make recommendations and, subsequently, judgments on the risks in corporate transactions. They do not do so on the basis of the impeccable behaviour of the current incumbent in the regulatory slot. We need a government of laws, not of men.
We keenly await more detail when the consultation period starts and hope it will allay concerns. But the current proposal is in real danger of using a blunderbuss instead of a rifle, which peppers innocent parties and misses the target. Let us protect pensions by all means but recognise that we should not do so at the expense of building better companies.