Should ministers have M&A intervention powers to protect pensions?

It emerged last week that the government may be planning to introduce special powers for state intervention where a pension scheme comes under threat. The Sunday Times reported on November 20 that it would look to create a public interest test to allow ministers to intervene in takeovers to safeguard pension funds or fine employers who raid pension pots.

This potential measure, which would follow the British Home Stores (BHS) fiasco, could be introduced in the government's forthcoming green paper on wider corporate governance reforms. It would be separate to the Department for Work and Pensions' (DWP) future green paper on defined benefit (DB) schemes which will explore a range of options including whether to give more powers to The Pensions Regulator (TPR).

During her October party conference speech in Birmingham, Prime Minister Theresa May clearly set out her ambition to crack down on pension scandals following BHS, issuing a stark warning to "a director who takes out massive dividends while knowing that the company pension is about to go bust".

Under the Enterprise Act 2002, the government can intervene if a merger or acquisition raises public interest concerns over defence for example. But should ministers be given powers where concerns arise around pensions? Would it make any difference in practice or would it just be a case of government wanting to be seen to be doing something to prevent another BHS?

State intervention?

If it does come into force, Sackers partner Faith Dickson is doubtful the power would ever actually be called upon: "I feel it's a grand gesture that won't result in much happening in practice. Ministers will be extremely reluctant to exercise powers to stop takeovers going ahead where there's a risk to the pension scheme, because they'll be cautious about freezing up UK transactions and interest in companies from abroad. They'll want to be very careful about the UK being seen as a good place to do business, which in reality will colour their views."

There is scepticism about what it would actually add to the regulatory regime currently in place to protect pension schemes.

Penfida founding partner Paul Jameson says: "We already have TPR which is well-positioned to judge whether or not a corporate transaction would be materially adverse for a pension scheme. I'd expect the ministers would probably have to pick up the phone to speak to the regulator anyway, and therefore it would be more effective if the regulator was involved because they are the experts."

He also believes it should be more of an "objective regulatory test" rather than a political test.

While it may be such a public interest power would only be used as a last resort, it potentially risks undermining TPR by introducing such a measure in the first place.

Also, if the regulator is given extra powers as a result of the DWP's green paper on DB provision, surely that should be enough to protect members without the involvement of the government? The regulator has been very specific about the powers it would like from learnings over BHS. It wants to require people to come to TPR in certain limited circumstances before they do corporate transactions, and to have more information gathering powers.

TPR's role

Dickson believes if the regulator had more advance warnings, it should be able to deal with these situations better.

"We keep missing the point that the regulator has pretty significant powers to impose obligations on companies to contribute to schemes. I can see TPR may benefit from greater requirements in legislation for it to be notified on certain things."

She suggests a requirement to notify the watchdog about a particular corporate activity such as where there is big hole in the pension scheme, and more upfront warning where dividend payments are going to be particularly high compared to scheme funding and deficit contributions.

She added: "I can see sense in giving TPR more notice to do something, but once it knows what's going on, it already has the powers it needs to require companies looking to buy other companies to face up to their responsibilities."

Some believe the Takeover Code should be amended to include a provision that had been considered in 2012 following the Craft takeover of Cadbury's.

Jameson says: "When the Takeover Code was modified in 2013, we asked for TPR to be given powers to review certain transactions and be able to block them, but that was ruled out as was thought to be detrimental to corporate transactions. The Code should include a provision that where there's a materially adverse effect on a pension scheme due to a corporate transaction, the regulator is given a power to pre-clear the transaction.

"The clearance regime isn't imposing the kind of disciplines on the corporate transaction market that it was intended to, so that's why there's a real case to consider a similar approach to the way we protect consumers with the competition regulation."

Any plans to grant ministers powers must be considered very carefully in the wider context of the current regime, and not just be a big political gesture. If TPR is given the extra powers it says would help do its job more effectively, surely that should be enough without having to involve politicians.