(April 16, 2013) – A rise in the delay of pension payments from employers could herald another wave of company insolvencies, according to new research.
Law firm Pinsent Masons reported on Monday that the UK had seen a 35% rise in late payments by employers, growing from 6,787 in 2011 to 9.172 in 2012.
This is the highest number of late payments registered in the past five years – exceeding even the number of delays to pension payments at the height of the credit crisis.
Under UK pensions rules, trustees of pension schemes are required to inform the Pensions Regulator when contributions from employers are received late, particularly if contributions remain unpaid after 90 days and are of “material significance”.
Jamie White, partner and head of restructuring at Pinsent Masons, warned the increasing number of late payments could signal an impending wave of restructurings and insolvencies.
“Time and again we have seen in insolvency proceedings that when companies are in distress, pension payments are deferred or not paid at all in an attempt to free up cash. This can buy time but creates – or adds to – a deficit while the business tries to trade its way out of trouble. The latest increase does raise real concerns,” he said.
“A proportion of this increase can be put down to the increased profile and vigilance of the regulator and improved compliance by industry – and particularly the insurance companies administering the schemes. However, those factors alone do not sufficiently explain the trend. The Pensions Regulator stipulates that it should only be notified of late payments if they are of ‘material significance’.”
Failure to pay pension scheme contributions on time can result in penalties and even criminal sanctions.
The fragile state of UK companies – particularly in the retail and service sector – has been well reported. In the event of a company failing, final salary schemes are moved into the UK’s lifeboat scheme, the Pension Protection Fund (PPF).
The last few months have seen a number of high profile insolvencies which have resulted in the PPF having to assist. Fashion retailer Aquascutum went into administration in 2012, having already entered a regulated apportionment arrangement with the PPF, which saw the lifeboattake on the scheme and a stake in the business to allow the firm to continue trading.
Later that summer, textile manufacturer Dawson International tried and failed to negotiate a similar regulated apportionment arrangement with the PPF, and subsequently went into administration
In April 2012, struggling airline British Midland (BMI) was offloaded by its parent company IAG to Lufthansa, but managed to get the PPF to agree to take on part of its final salary scheme as part of the merger.
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