Businesses are ‘milking and dumping’ to shed pension scheme deficits, according to a report by the Pensions Institute at Cass Business School.

Author of the report Keith Wallace who is also Association of Corporate Trustees president and Pensions Advisory Service legal advice panel chair has identified 15 ways companies shed or sidestep their pension scheme deficit. In addition, he has identified 20 ways in which scheme surpluses have been exploited.

Wallace has warned that no-one should underestimate the ingenuity of businesses and advisers to milk and dump their pension schemes.

He said the study is particularly topical, given what has been happening at companies like BHS, Halcrow and Tata Steel – with allegations of excessive dividends paid to proprietors, bludgeoning pensioners into accepting lower benefits, proprietors distancing themselves from legal liability and incoming proprietors seeking to avoid liability altogether.

Pensions Institute director Professor David Blake described a pension scheme like a “coach and horse carrying gold on a long journey through hostile territory in a Wild West movie”.

“Despite the determination of the trustees to navigate a safe journey over the rocky terrain and the bravery of The Pensions Regulator as outrider, the coach with its valuable bullion is a sitting duck for corporate ingenuity”.

Wallace added: “Some of these things have been going on for forty years. It is naïve to think that they have now stopped, especially given the current enormous size of pension deficits. The Pension Protection Fund faces a huge moral hazard as a result of the practices employed by some companies in this country”.

As a result, The Pensions Institute is calling on the government to establish an effective Early Warning Programme (similar to that operating in the Pension Benefit Guaranty Corporation, the US equivalent of the Pension Protection Fund) in which The Pensions Regulator actively seeks out and starts negotiations directly with weak employers.

This would enable the regulator to pick up early signs of the kind of practices identified in this report. An extra incentive would be to adopt the PBGC’s ability to claim up to 30 per cent of a business’s net worth in the most extreme cases of abuse. This would give greater assurance to beneficiaries that energetic and robust actions are taken on their behalf by the regulator.

The report can be read here.

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