Pension chief plays down fears over rogue firms

The chairman of the new Pensions Regulator has dismissed fears about the watchdog's apparent inability to pursue negligent companies overseas, insisting such cases are likely to be very rare.

David Norgrove, the former head of the Marks & Spencer pension scheme and a one-time private secretary to Margaret Thatcher, will take up the post on 6 April with a remit to oversee occupational pension schemes and ensure that companies take proper responsibility for their pension liabilities.

However, although the regulator will have powers to force negligent UK-domiciled companies to increase contributions to their pension schemes, it will have very little sway for those who are domiciled overseas but have operations in the UK.

In an interview with The Independent, Mr Norgrove said: "People have focused on this, and I'm not sure it's proportionate to the real issue. Most companies want to live by their obligations and do the right thing by their pension schemes. So you're talking about rogue companies - and if they register in Afghanistan then clearly we won't be able to do anything about it. But I don't believe that's a significant problem.

"Our American equivalent hasn't found this an issue. I think companies would be pretty ill-advised if they thought we couldn't pursue them."

Although the new regulator comes into power in just over two weeks' time, the rules surrounding pension scheme funding will not be finalised until September. But Mr Norgrove revealed that new draft proposals will be released within the next fortnight, providing a framework for companies before the final rules later this year.

These will, in effect, see the old Minimum Funding Requirement (MFR) scrapped and replaced with less specific rules obliging companies to fund their pension schemes to a "prudent" level, he said. "We won't be setting a minimum funding requirement, that will be up to the actuaries working with the companies and the trustees, and the actuaries will have to agree what's 'prudent' around what's necessary to fund the benefits," he said.

"The MFR became a sort of ceiling - people forgot what the 'M' stood for - and a lot of companies just treated the MFR as their target. And actually it's not an adequate measure of what the required funding level is. We would expect the target now to generally be higher than the MFR."

If companies' schemes are underfunded, they will have to agree a programme with their actuary and trustees to restore it to a prudent level of funding. But Mr Norgrove said there will be no specific time limit for the programme. Once again, it will be based on the principle of "prudence". Once companies have agreed funding levels with trustees, these will be legally binding, with the regulator able to force companies to abide by them, and ultimately to levy fines on those who do not. However, the maximum penalties remain just £50,000.

"For a major company, £50,000 is not a substantial amount of money, but there would also be very significant PR effects," he said. "I have no concerns that companies in that situation won't respond when they come under that sort of pressure from us."

Mr Norgrove said the regulator will spend its first two years compiling a comprehensive database of UK pension funds and establishing which funds are at the biggest risk. He said he expects a large part of the regulator's role to be providing guidance for companies involved in merger and acquisition activity. Although companies will not be forced to consult the pensions regulator when they are involved in M&A activity, he said he will be able to force both buyers and sellers to ensure the pension funds involved do not lose out as a result of any deal.

Mr Norgrove said the new regulator would not be advising companies on how to invest the assets in their pension schemes, but would keep a close eye on those with the highest risks. "I don't think it's for us to give general advice to pension schemes on how they should invest their assets," he said.

Mr Norgrove conceded that while his main aim would be to prevent pension schemes falling back on the new Pensions Protection Fund (PPF), there would inevitably be several that would need to call on the fund. "With the scale of deficits that this country has, that's not going to go away overnight. And we're not going to be able to stop companies going bankrupt."