Kvaerner pension fund set to test UK regulator's power overseas

The new Pensions Regulator's cross-border disciplinary powers were heading for their first test yesterday, after emerged that Kvaerner, the Norwegian construction company, had sold its UK operations, including its underfunded UK pension scheme, for £1. The move put the pensions of up to 30,000 former and current workers at greater risk.

The sale of Kvaerner plc, the UK company, to its management was completed just days before the Pensions Regulator opened its doors to business in April, and will leave the pension fund as part of a much smaller company, whose revenues have been shrinking rapidly.

In its latest set of accounts, published at Companies House, Kvaerner plc posted a £95m loss for the year, as its revenues shrank from more than £1.2bn to less than £400m.

Although the Pensions Regulator had not been formally been created when the sale of the UK business was completed, its powers are retrospective and allow it to challenge companies over transactions going back to April 2004.

If the regulator believes that a transaction may have been detrimental to the company's UK pension fund, it can order a significant contribution from the parent company into the fund. But critics say these powers will be almost impossible to enforce on companies based outside the UK, and especially, as is the case with Kvaerner, those outside the EU.

The regulator refused to comment yesterday on whether it was investigating Kvaerner, but said it was confident of its ability to successfully pursue companies based outside the UK. Serena Mitchell, a spokeswoman, said: "It would be foolish for any company to think that we wouldn't use our powers and try to enforce them [overseas]. Obviously it's a new area, and it's yet to be tested, but we would do everything we had to."

The new owners of the company may also find themselves challenged by the regulator. Kvaerner plc has sold several subsidiaries over the past 18 months, leaving the regulator with the potential to demand that some of the sale proceeds are allocated into the pension fund.

In a statement, the Norwegian Kvaerner group, which is listed on the Oslo stock exchange, said the sale of its UK business was not driven by the growing UK pension liabilities. It added that it did not believe the main group had ever had full responsibility for the UK pension fund, adding that it did not think the UK pension scheme would be adversely affected by he sale.

John Ralfe, an independent pensions expert, said that if the UK company collapsed, the new Pensions Protection Fund could find itself landed with liabilities of as much as £200m to cover - adding to the long line of bust schemes which are threatening to call on the fund.

"It should be a matter of concern for the Pensions Protection Fund that we have a small, loss-making and shrinking sponsor with £1.4bn of liabilities and 30,000 members," Mr Ralfe said.