Now, this ruling is really going to shake things up!

GDB2222

http://www.telegraph.co.uk/finance/personalfinance/pensions/8195407/Pension-ruling-catastrophic-for-companies.html

Essentially, pension trustees get first go at the company's assets, ranking ahead of almost all other creditors - including the corporate recovery vultures. Good news for pension scheme members, but very, very, very bad news for companies with large pension deficits trying to raise more funds.

The case is going to appeal, but even so it's potentially game-changing.

1984ReturnsForReal_2

However, its not bad for many hundreds of thousands of small businesses whose directors run their own pension schemes.

vivatifosi

I think its a good idea that company pensions are given priority over asset strippers. Hopefully fewer companies will end up needing propping up by the PPF as a result.

The interesting point for me though is one that doesn't get stated in the article and that is that the parent is foreign. There's a lot of uncertainty as to what happens with pensions where the parent company jurisdiction is outside of Europe. That's the bit I'll be watching most closely.

GDB2222

vivatifosi wrote: »

I think its a good idea that company pensions are given priority over asset strippers. Hopefully fewer companies will end up needing propping up by the PPF as a result.

Totally agree. However, the flip side is that more of these companies will go to the wall, as the risk of loss is far greater for anyone putting money into the company to bail them out. So, you can expect a lot more redundancies as the banks pull the plug much earlier so as to try to recoup something rather than nothing, and no white knight appears to keep the company going.

Loughton_Monkey

This is definitely a blank cheque to small businesses who are looking very bleak. Many would know they can't afford huge pensions until fully established. Better to keep the cash in the business. So set-up strategy No 1 is award yourself massive and maximum pensions (without full intention of ever funding them). If/when you see company going bust, then make sure you do so while there's just enough assets to give you the pension.

Gin & Tonics all round.....

vivatifosi

Loughton_Monkey wrote: »

This is definitely a blank cheque to small businesses who are looking very bleak. Many would know they can't afford huge pensions until fully established. Better to keep the cash in the business. So set-up strategy No 1 is award yourself massive and maximum pensions (without full intention of ever funding them). If/when you see company going bust, then make sure you do so while there's just enough assets to give you the pension.

Gin & Tonics all round.....

A big problem with DB scheme deficits is that said deficit is historic. A combination of rule changes, less favourable markets, changing demographics and therefore ways of calculating mortality, etc leads to a deficit.

If a company knowingly and deliberately ran a deficit in order to go bankrupt, its trustees could be held responsible. I doubt you'd find anyone willing to be a trustee under those circumstances.

StevieJ

GDB2222 wrote: »

Totally agree. However, the flip side is that more of these companies will go to the wall, as the risk of loss is far greater for anyone putting money into the company to bail them out. So, you can expect a lot more redundancies as the banks pull the plug much earlier so as to try to recoup something rather than nothing, and no white knight appears to keep the company going.

Don't think so, the govt have already been busy sticking their nose into private pension business e.g. RPI to CPI, the judge made this telling comment.

"Parliament might wish to consider a suitable amendment," he added.

vivatifosi

StevieJ wrote: »

Don't think so, the govt have already been busy sticking their nose into private pension business e.g. RPI to CPI, the judge made this telling comment.

Very true Stevie, I doubt that there is a DB scheme in the country where the trustees aren't looking at the scheme deeds in some detail.

FWIW trustee training IMO has become much more hardline from the government in terms of paying down deficits and the expectations of the company on the part of the trustees. Even with the downturn, companies seem to be expected to get their deficits in order much quicker than had been the case in the past in terms of arranging payment plans with the employing organisation, etc. This is not specifically to do with a Conservative govt, but the way the rules have been heading for a while. Governments have been playing with pensions for years.

hshen

I'm glad my divan bed base has lots of draws. Plenty of space for my pension pot.

System

It has always amazed me that company pension funds are allowed to have any financial connection whatsoever with the company itself.
If I ruled the world pension funds would be forbidden from investing in the workers' own employer, but would be obliged to spread the risk over a range of other investments.