More companies could go bust after the government’s pension protection fund (PPF) was broadened out to potentially cover schemes including Turner & Newall’s, which has a £500m pension deficit, before the official start date of April next year.
The government was warned that it risks a ‘catastrophe’ if pension fund trustees force companies over the edge, knowing that the employer-funded ‘safety net’ would catch pension scheme members.
Malcolm Wicks, the minister of state for pensions, prompted the concerns after apparently throwing a lifeline to pensioners whose employers become insolvent before the PPF’s start date.
Wicks told parliament: ‘Eligible schemes, whose sponsoring employer has already entered insolvency proceedings may still be able to receive PPF compensation.’
But Gary Cullen, a partner with law firm Maclay Murray & Spens, warned of dire consequences.
In a letter to the Department for Work and Pensions, he wrote: ‘This would place an unbearable burden upon the PPF within its first few months of existence, which could have a catastrophic effect upon its future.’
He told Accountancy Age the policy could also cause an insolvency double whammy, with some cash-strapped companies being forced out of business by trustees, and others being crippled by spiralling contributions to the PPF to help bail out their pension schemes.
If that were to occur at major companies such as Turner & Newall ‘the PPF could already have £1bn liability before contributions are put into it. It would be bust before it even started’, he said.
A DWP spokeswoman claimed it was not worried about the PPF being overloaded on day one.
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