25 October 2004 - Results of industry consultation on moral hazard clauses in Pensions Bill
The Government has today published the results of its consultation with the pensions industry on the moral hazard clauses in the Pensions Bill. The report sets out the amendments to the Bill which clarify the clauses and address industry concerns.
Pensions Minister Malcolm Wicks said today:
“With the moral hazard clauses in the Pensions Bill we have sent a strong message to unscrupulous employers: they can’t use company structures and business transactions as a cover for avoiding their pensions obligations and dumping their liabilities.
“As promised, we’ve consulted with the industry over the summer and have listened to their concerns. The amendments we have put forward to the Bill today will provide the reassurance responsible businesses have asked for on the aims, objectives and practical application of the moral hazard clauses. At the same time the amendments ensure the Pension Protection Fund and the taxpayer don’t pay for employers seeking to dodge their pension obligations.”
The main amendments include:
- Time limit: The Pensions Regulator can look at acts or failures to act that have occurred not more than six years before the determination to issue a contribution notice in relation to that act or failure to act.
- Acts or failure to act covered by clause 39: To recognise situations where pension liabilities may be putting companies and, therefore, employment at serious risk. The Regulator will need to consider the purpose of the action – to take into account any adverse affect on employment.
- Clearance: Where companies are undergoing restructuring and want clarification on the effect of the legislation, the Regulator will provide a clearance procedure. The Regulator must make decisions in relation to clearance as soon as reasonably practicable but will not be bound by any clearance statement if there is a material change in circumstances, or if the circumstances described in the application are not real.
- Scope of financial support directions: It is not the intention that individual directors or shareholders would be liable for any pension deficit. Therefore the majority of individuals will be excluded from the scope of the financial support directions.
Notes for editors
- The report is available at: www.dwp.gov.uk/consultations/2004/index.asp
- On 27 April 2004, the moral hazard clauses of the Pensions Bill were introduced in Commons Committee.
- Moral hazard is the risk that, because the Pension Protection Fund (PPF) will compensate scheme members if their employer has become insolvent and the scheme is under funded, employers will deliberately manipulate their affairs so as to shift their deficits to the PPF, thus increasing the PPF levy costs for responsible employers.
- The Pensions Bill was published on 12th February and can be found at http://www.publications.parliament.uk/pa/cm200304/cmbills/057/2004057.htm
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