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More UK employers trying to dump pension schemes

The number of companies attempting to dump expensive staff pensions they no longer want to pay for is on the rise, according to the Pension Protection Fund.

The PPF is paid for by a levy on employers and gives compensation to members of final salary schemes when their employers become insolvent.

Malcolm Weir, head of restructuring and insolvency at the PPF, told the Financial Times that since August it has had an increase in approaches from companies purporting to be near insolvency, but that it suspects are not.

The PPF must be convinced that a company will run out of cash before allowing its pension scheme into the fund, when compensation will be paid.

"Every single time that we have had a proposal put to us the first thing to check is the inevitability of the insolvency," said Mr Weir. "However, since the end of summer there's been more cases where we've said we are not fundamentally convinced you're insolvent, or will become insolvent.

"My team has to do a lot of gatekeeping, and be really awake to all these attempts to bring things in."

The number of UK company insolvencies is actually falling year on year, thanks to the relatively benign economic environment.

The PPF's annual report for 2013/14 shows that it was assessing 182 pension schemes as of March 31 2014, compared with 223 as of March 31 2013.

Mr Weir said recent pension dumping attempts were predominately being made by overseas-owned groups, but he declined to name examples.

"We've been talking to one company who said their parent is going to do it (insolvency) and they haven't done it yet," said Mr Weir.

"So we've gone back and said you've got a lot of work to do still to convince us that this is insolvent before we even start talking about doing a restructuring."

However, he added that the approaches from the overseas-owned groups involved a judgment call on the PPF's behalf, because of the possibility that the parent "could just pull the plug" and let the UK subsidiary collapse.

"We encourage early engagement but we've set out some very clear guidance on the sorts of companies we'll talk to because there is a real danger that people could try and just dump their pension schemes, because of the large and expensive costs they would rather be without," added Mr Weir.

Alan Rubenstein, PPF chief executive, said he suspected more companies would consider pension dumping as the economy improved and interest rates began to rise, prompting banks to take a tougher line with companies on life support.

"But it is absolutely 100 per cent the job of the pension regulator to prevent pensions dumping by using their legal powers," said Mr Rubenstein. "We are the Pension Protection Fund, not the pension dumping fund."

The move comes as the government faces pressure from workers who say they will lose millions of pounds in retirement income after being shifted into the lifeboat fund, which caps compensation payments. Pilots from struggling airline Monarch have claimed they will lose up to £10m in retirement income after it was sold to restructuring specialists and its final salary scheme shifted into the PPF.

Currently, payouts for Monarch pilots from the PPF are limited at £26,572 a year if the scheme has a normal pension age of 55.

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