BusinessBusiness RecoveryPension laws may force insolvencies

Pension laws may force insolvencies

The number of companies facing insolvency could increase, because new legislation may force them to maintain pension schemes they cannot afford.

Link: Company insolvencies on the rise

The new rules, announced by work and pensions secretary Andrew Smith in June, are designed to protect members of pension schemes.

But they also mean that employers who decide to wind up a scheme must pay for it on a ‘full buyout’ basis at current market prices. In the past, they only had to pay out at a ‘minimum funding requirement’, meaning employees would only receive 50% of what they had expected.

Experts have warned that the new legislation could make it prohibitively expensive for companies to close pensions schemes.

Nick Hood, partner at insolvency firm Begbies Traynor, said: ‘In an insolvency situation, the rules will make it more expensive to rescue a company. The claim for winding up the pension scheme will be greater and it will mean less money for creditors.’

The real problem was, he added, that with an estimated £160bn pensions black hole, the new laws could have a depressive effect on the UK economy, as companies borrow money in an effort to keep pension schemes open.

Terry Monk, a director at Independent Trustee Service, said the regulations could lead to a ‘potential huge liability’ on companies’ books.

‘In some cases, it could make companies insolvent if trustees force employers to pay more money than they could afford,’ he said.

The new rules came into force in June after enraged employees of ASW Holdings poured out on the streets in protest after losing up to 90% of their pension when the company collapsed.

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