Field’s proposal for scheme deficits bill raises pension cut fears

Webb, who is director of policy at Royal London, also said there is a "war" within government over pensions, with a divide between the Department for Business, Innovation and Skills, and the Department for Work and Pensions.

His comments came after Field said the pensions bill he is proposing would require “huge” work, including on occupational pensions.

Field said: “We are clearly going to have issues arising from BHS in that clearly occupational pensions are in danger, so we will be proposing whether the law needs to be changed and what the regulatory machine needs to look like.”

The Labour MP for Birkenhead said work would begin later this year on such schemes, which he referred to as “beached whales”.

He said: “These wonderful huge occupational pension schemes are heading towards the shore and will become like beached whales with mega deficits, most closed to new members and companies struggling to pay contributions, if any at all.”

“We want to begin a debate on how to obtain the best possible deal for future pensioners from such schemes which don’t see the scheme crashing into the [Pension Protection Fund] but which maintain a flexibility so that if good times arise again there will be real returns on capital.”

Field said seminars would kick off the process of bringing the ideas into parliament: "It will be a mega, mega piece of work calling on both members of parliament and peers and outside experts."

Asked if DB pension scheme members could face cuts to their promised retirement income as a result, he pointed to the Tata scheme: “If in fact there are cuts, adjustments, whatever you want to call it, I’m anxious this is discussed well before any crisis point is reached."

He added: “My guess is that this will be the first of a series of pensions bills we will see in this parliament.”

However, Webb has warned that Field’s plans could see DB pension scheme members suffer a reduction in their expected retirement incomes.

The PPF said this month that four out of five DB pension schemes are currently in deficit (4,804 schemes out of 5,945) and the collective deficit of all DB schemes stands at £270bn, meaning the majority of DB members could be affected.

Webb said: “Trying to solve deficits by taking away pension rights people have already built up would be a worrying development. While I would welcome legislation that made firms with pension deficits think twice before paying out big dividends, I would be concerned about Frank Field's separate proposal, which could undermine people's confidence in the pension system.”

Webb added that it was clear there was a battle within government. He said: “The business department is heavily focused on protecting steel jobs, while the DWP are understandably concerned that a one-off deal to fix the Tata problem could set a dangerous precedent which would undermine the pension protection framework.”

Legal considerations

Clifford Sims, pensions partner at law firm Squire Patton Boggs, questioned the legality of reducing benefits for DB members.

“The UK has a very complex regulatory system which has developed over several decades of political intervention, built on a degree of political consensus as to how to build sustainable pensions for the future," he said. “But proposing yet more legislation off the back of particular employer circumstances is probably unwise.”

Sims said it is not right that insolvencies should lead to general pension cuts. “Corporate insolvency is sadly a fact of life. That does not mean that it’s right to cut back pensions generally, especially where employers and trustees have taken prudent measures to fund the benefits promised and there is a good chance that over time they can be paid," he said.

He said cutting back benefits without member consent is not legally possible other than in extreme circumstances. "There is a reserve power for the Pensions Regulator to do that, but I am not aware it has ever done so.”

Update (May 27 2016):

Frank Fields announced an inquiry into DB schemes on Friday.

"The committee will of course respond to the government on British Steel, but we will be going much, much further to consider defined benefit pension schemes in their entirety," he said.

"This will be a major inquiry considering radical solutions to one of the great problems of this age. The inquiry will consider, amongst other things, radical solutions that could be more easily implemented if real returns on capital rise again."