15 Apr 2013 | 09:22 am | 1 min. read
An alarming rise in the number of late payments made into company pension schemes could cause concern for UK pensioners and be indicative of economic problems laying ahead, according to specialist Restructuring lawyers at international law firm Pinsent Masons.
Research by Pinsent Masons indicates that the number of late payments by employers being flagged with the UK Pensions Regulator show a 35% rise in late payments during last year, growing from 6787 in 2011 to 9172 in 2012. *
The figures also show that the number of late payment notifications has reached its highest point in the past 5 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'.
According to Restructuring specialists at Pinsent Masons, the rise could signal an impending wave of restructurings and insolvencies.
Jamie White, Partner and Head of Restructuring at Pinsent Masons, says:
"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. 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'."
Pinsent Masons points out that, although there will be concern around the significance of an increase in late payments, pensioners themselves have some protection in the event of insolvency.
The Pension Protection Fund protects members of eligible defined benefit pension schemes when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme.
White concludes, "A 'lifeboat' fund does exist to support pensioners where schemes have failed, but if we do see large-scale insolvencies there will be questions around the level of support available."
The firm also points out that failure to pay pension scheme contributions on time can result in penalties and even criminal sanctions.
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