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Business Comment

David Prosser: The pensions regulator is all-powerful

Outlook No one could accuse Tony Hobman, the chief executive of the Pensions Regulator who announced his departure yesterday, of failing to serve his time. He has run the regulator for five years, since it was first set up to protect the interests of millions of members of occupational pension schemes.

Still, Mr Hobman must be relieved to escape an office that has been shouldering ever heavier responsibilities in recent times. Initially launched with consumer protection in mind, the Pension Regulator's rulings are now often make-or-break for the employers that sponsor occupational schemes.

Take Reader's Digest UK, saved last week by a private equity consortium. It needed rescuing after the American magazine group put its British subsidiary into administration because the regulator ruled that the restructuring of the pension fund it proposed was unsatisfactory.

There is scope for many more run-ins of this sort in the months ahead. British Airways is waiting to hear whether a deal it has agreed with its scheme trustees is acceptable to the regulator. If the answer is no, the merger agreement it has signed with Iberia could be threatened.

BT is dogged by pensions-related uncertainty, too. It hopes the regulator will sign off on the plan it has hatched to make good a £9bn scheme deficit over 17 years, a much longer period than the watchdog usually allows. A positive ruling is crucial for the telecoms group.

Uniq, the food supplier that serves retailers including Marks & Spencer, is the latest firm to lob a tough call the way of the regulator. Yesterday, it said it wanted permission to link the pension contributions it makes in future to its profitability. The deal, designed to help Uniq cope with a pension scheme deficit that is 17 times the size of the company itself, has the agreement of the trustees but requires regulatory clearance.

These are difficult decisions to make. The Pension Regulator's job is to minimise the risk of companies going under and leaving a black hole in their pension schemes, because other companies that behave more responsibly have to pick up the cost of providing benefits to the victims of such failures via the levy charged by the Pension Protection Fund. However, a single-minded focus on this goal can have the perverse effect of driving firms closer to collapse. Uniq warned yesterday that if the regulator did not back its plan – and an alternative could not be agreed with the trustees – it might have to consider winding up the company.

Mr Hobman is standing down to head up a new body providing financial education for consumers. The tricky question of how pension scheme members are protected by the regulatory system will be a topic he might like to explore with them.