The U.K. pension fund industry is coming under increased scrutiny by politicians and regulators with two recent cases of employers struggling to reconcile corporate considerations with defined benefit promises.
Particular scrutiny will come from the House of Commons Work and Pensions Select Committee, which on May 27 said it would launch an inquiry into DB funds in the U.K. The inquiry follows the emergence of problems for two pension funds in particular: The £13.3 billion ($19.4 billion) British Steel Pension Scheme and the £558.3 million pension funds of retailer BHS Ltd. All are based in London.
“The state of the British Steel Pension Scheme is further worrying evidence of a wider danger to one of the biggest savings successes in Britain during the last century — occupational pension schemes,” said Frank Field, a member of Parliament and chair of the Work and Pensions Committee, in a statement regarding the inquiry. “Pension law and regulation must urgently adapt to the issues of the future, rather than the problems of the past. The whole savings edifice is in danger.”
The inquiry, which is yet to be launched, will be “a major inquiry considering radical solutions to one of the great problems of this age,” Mr. Field said, and will consider “radical solutions that could be more easily implemented if real returns on capital rise again.”
The U.K.'s private defined benefit plan market provides benefits to more than 11 million people. More than 5,000 of the associated funds have a combined deficit of £805 billion.
The inquiry follows a consultation paper published by the U.K. government on May 26 into how to keep the British Steel Pension Scheme — which has a £700 million deficit — afloat and out of the Pensions Protection Fund, London, the country's lifeboat for the pension funds of insolvent companies.
The government is looking for comment from members of the pension fund industry regarding a number of proposals, including regulatory changes to allow trustees of the fund to transfer members into a new, successor pension fund with reduced benefits for these participants without their consent.