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Regulator Investigates Pension Loophole

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The Pensions Regulator and the Pension Protection Fund (PPF) raised the concerns following HIG Capital’s acquisition of Silentnight, the UK’s largest bed manufacturer.

HIG, which owned Silentnight’s debt via its subsidiary Bayside Capital, called in the administrator after the PPF refused to accept a deal from the private equity firm to the pay the Silentnight pension scheme at a rate of 6p in the pound compared to 65p offered to trade creditors.

It was also willing to offer a 10pc stake to the PPF, but the PPF declined the offer because it typically seeks 33pc in the restructured company. The PPF would usually sell its investment in the restructured business at a profit once the business recovers.

HIG then bought the company out of administration in May, taking full ownership of Silentnight, including its brands and assets but not its pension obligations. Silentnight employs 1,250 workers.

It is the second private equity firm in the last few weeks to shed pension liabilities as part of restructuring deal.

In April, Sun European Partners acquired some of the senior debt in Polestar, the printing group, and offered the company’s pension scheme trustees a deal where it would make payments totalling £45m over the next twelve years against the £500m it would have needed to pay the pension benefits in full. The trustees accepted.

The fear is with the economy ailing, many more buyout firms will look to exploit the apparent loopholes that enables them to buy struggling companies without taking on the pension liabilities.

The Pension Protection Fund was established to pay compensation to members of underfunded pension schemes when a company collapses. It only protects members of certain final salary schemes.

A spokesperson for the Pension Regulator said: "We are investigating the situation - it is early days, so we are not sure yet what action we are going to take”.

The regulator is said to be looking at whether it can use its "moral hazard" powers, which allows it to prevent companies and individuals from avoiding their pension obligations.

http://www.telegraph.co.uk/finance/personalfinance/pensions/8511953/Regulator-investigates-pension-loophole.html

I just checked the dictionary and it says

regulator noun

an official who makes certain that the companies who operate a system, such as the national electricity supply, work effectively and fairly

There is no mention of a chocolate fireguard or saying "welcome to the buffet"

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Private equity is about getting in- generating a lot of fees, looting the company, and getting out- who the f*ck cares about the pensions of the employees who created that value- pensions are for little people.

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If a company goes bankrupt with it liabilities greater than its assets then the sale of assets goes part way to settling the liabilities. Otherwise the assets would be toxic, cannot be sold and the creditors get nothing. I cannot see how they could do otherwise. The problem here is in allowing companies to have non-funded pension schemes.

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Pensions, what a mess. Yet another great example of how meddling makes things worse.

Here is the problem. A company is worth £100. The pension fund attached to it is worth -£200. You are not allowed to dump your pension scheme, or cut the benefits, so the pension scheme busts a profitable company, one that is actually making something and doing something and generating wealth.

It seems to me that all the private equity company is doing here is buying the company on the condition that it doesn't take the full pension liability. Why on earth would it make an offer on any other condition?

Bust pension schemes like this one should be closed down. The assets should be divided up in accordance with payments made into the scheme. At the moment those drawing a pension are preferred creditors, that is wrong. Those working can find they have lost their pension, all of it. I bet those pensioners drawing a pension could cope with a small reduction in their pensions. Doing this would work, and be fair.

Instead, we have more meddling. Pensioners are protected creditors, the rest get scraps. The Pension Protection fund will takeover this scheme now. It doesn't have access to taxpayer funds (praise the lord), but it does raise a levy on other defined benefit pension schemes, which in turns puts more strain on them and their parent companies. The working people are slaving away, paying in to these schemes, and so many are going to wake up one day to find that pension gone. And that money will not be taken just by rich bankers, overpaid financial advisors and troughing actuaries, but by pensioners unaware they are spending other people's savings and a law that fails to protect the rights of those unlucky enough to be doing work.

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I think over the next 10-20 years we are going to see alot more companies go bust due to their pension obligations.

Just look at BT or most councils, the majority of income services the pension liabilities and lets not forget Brown raided the pension companies as well.

http://www.thisismoney.co.uk/pensions/article.html?in_article_id=413695&in_page_id=6

The problem is our wealth comes largely from these companies, lose them, lose the wealth they generate.

Which is why I think that the government should take down ALL defined benefit plans, so they cannot destroy the companies they are attached to. Sure this means that individuals might get less than they expect when a pension fund is closed down, but the whole nations loss is far greater if the productive companies close because of this.

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The problem is our wealth comes largely from these companies, lose them, lose the wealth they generate.

Which is why I think that the government should take down ALL defined benefit plans, so they cannot destroy the companies they are attached to. Sure this means that individuals might get less than they expect when a pension fund is closed down, but the whole nations loss is far greater if the productive companies close because of this.

No turn that around

Pension funds that are or have been set up by companies should be a seperate entity to the company and be ring fenced .

In your post number 7 you make a statment and give an example of a company being dragged down by the liabilities of its pension . Many companies have over the years made massive gains from the pensions they have been running and in many cases have drained the money from them , with the liabilities of the pension schemes still in place if a company then goes belly up the pension follows.

If companies were forced to set their pension schemes aside they could not blame the liabilities of the pension schemes on the companies insolvency and visa versa.

The private company pension industry is in the mess it is in due to past and present govenments allowing the fraud to continue and also due to the money they have robbed from the schemes. The last Tory govenment taxed the surpluses so the companies took pension holidays , GB taxed the dividends , they are both to blame for adding to shortfalls in private pension schemes.

When Robert Maxwell went over the side of the boat John Major had the ideal oppotunity to sort the whole thing out and bring in laws to protect peoples money in these schemes BUT HE DID NOT honest John looked after those creaming the ill gotten gains from the pension schemes.

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No turn that around

Pension funds that are or have been set up by companies should be a seperate entity to the company and be ring fenced .

In your post number 7 you make a statment and give an example of a company being dragged down by the liabilities of its pension . Many companies have over the years made massive gains from the pensions they have been running and in many cases have drained the money from them , with the liabilities of the pension schemes still in place if a company then goes belly up the pension follows.

If companies were forced to set their pension schemes aside they could not blame the liabilities of the pension schemes on the companies insolvency and visa versa.

The private company pension industry is in the mess it is in due to past and present govenments allowing the fraud to continue and also due to the money they have robbed from the schemes. The last Tory govenment taxed the surpluses so the companies took pension holidays , GB taxed the dividends , they are both to blame for adding to shortfalls in private pension schemes.

When Robert Maxwell went over the side of the boat John Major had the ideal oppotunity to sort the whole thing out and bring in laws to protect peoples money in these schemes BUT HE DID NOT honest John looked after those creaming the ill gotten gains from the pension schemes.

Miko,

I am not sure what your idea is here.

Are you saying that the companies with schemes should cease to be responsible for closing any deficit? If so, how then do you deal with schemes that would then become insolvent?

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Miko,

I am not sure what your idea is here.

Are you saying that the companies with schemes should cease to be responsible for closing any deficit? If so, how then do you deal with schemes that would then become insolvent?

Pension schemes should be ring fenced when they are first set up. We all know that final salary schemes are all but finished in the private sector , they are all but for a very few now money purchase. So the money put in by the employers and their workers increases or decreases over the years and the pensions paid out depend on each individuals pot growing . Unless the scheme is invested by complete idiots it will not become inslovent.

As for current schemes that have deficits much of those deficits are due to the stock market dropping , companies takeing money out and promises made with the final salary commitments. The defict's in many cases will close just like BT's own pension as the stock market recovers and companies make good the money not paid in during past years when they were taking to many payment holidays while still promising x amount of pension to people.

Your proposal that inslovent schems should just be scrapped is wrong as in many cases inslovent pensions have been due to missmanagment of the money in them and therefore YES let the company itself fail and sell all the companies assets to recover as much money as possible to repay the pension schemes especially where it is evident that money was taken by companies over the years. As for jobs being lost if these companies fail the companies that pick up the bussiness off the failed companies will provided jobs to replace the lost ones if there is the market for that kind of bussiness.

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Pension schemes should be ring fenced when they are first set up. We all know that final salary schemes are all but finished in the private sector , they are all but for a very few now money purchase. So the money put in by the employers and their workers increases or decreases over the years and the pensions paid out depend on each individuals pot growing . Unless the scheme is invested by complete idiots it will not become inslovent.

As for current schemes that have deficits much of those deficits are due to the stock market dropping , companies takeing money out and promises made with the final salary commitments. The defict's in many cases will close just like BT's own pension as the stock market recovers and companies make good the money not paid in during past years when they were taking to many payment holidays while still promising x amount of pension to people.

Your proposal that inslovent schems should just be scrapped is wrong as in many cases inslovent pensions have been due to missmanagment of the money in them and therefore YES let the company itself fail and sell all the companies assets to recover as much money as possible to repay the pension schemes especially where it is evident that money was taken by companies over the years. As for jobs being lost if these companies fail the companies that pick up the bussiness off the failed companies will provided jobs to replace the lost ones if there is the market for that kind of bussiness.

Companies cannot take money out of a scheme. Regulations have prevented that since Maxwell.

Deficits will not always close. Some deficits are just too big. Those schemes are insolvent. The silent night scheme is an example of an insolvent scheme. Complaining about pension payment holidays doesn't change anything, there isn't enough money and someone won't get what they were promised. I am arguing that he allocation of those losses is horribly unfair, and to prevent further disasters, let's close down these schemes in a fair and controlled way. Throwing the scheme into the PPF just makes matters worse.

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Companies cannot take money out of a scheme. Regulations have prevented that since Maxwell.

Deficits will not always close. Some deficits are just too big. Those schemes are insolvent. The silent night scheme is an example of an insolvent scheme. Complaining about pension payment holidays doesn't change anything, there isn't enough money and someone won't get what they were promised. I am arguing that he allocation of those losses is horribly unfair, and to prevent further disasters, let's close down these schemes in a fair and controlled way. Throwing the scheme into the PPF just makes matters worse.

Im not sure on your first point . That would be the same as ring fencing which has not happened.

Complaining about pension holidays doesn't change anything , however making up for them by putting the money in that should have been put in in the first place does change things and should be the priority in a case like silent night scheme any money released from that firm should go to the pension liabilities not vultures who want to feed of any meat left.

What is a fair and controlled way of closing down these schemes ?

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Im not sure on your first point . That would be the same as ring fencing which has not happened.

Complaining about pension holidays doesn't change anything , however making up for them by putting the money in that should have been put in in the first place does change things and should be the priority in a case like silent night scheme any money released from that firm should go to the pension liabilities not vultures who want to feed of any meat left.

What is a fair and controlled way of closing down these schemes ?

The problem is that the value of Silentnight as an entity shorn of it's pension scheme, is not high enough to fill close the deficit. That is what is going on here, they are trying to buy Silentnight, but it is less than worthless if they have to take the liabilities. The buyer can just walk away, there is compunction on them to buy it. In theory, the pension scheme itself could take over the company if it thought that were in it's best interest. However, this buyer is telling the scheme, I offer you this much money to remove all liabilities if I takeover this company, and if you don't agree, I won't buy Silentnight.

What happens now is that without a backer, the scheme will be run by the PPF. Those retired will get their pensions in full. Those working, including those with many years of contributions, will likely get a pittance. A fairer way would be for those retired to take a reduction on their entilement as well, leaving a larger share for those unlucky enough to be working when the scheme fails.

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The problem is that the value of Silentnight as an entity shorn of it's pension scheme, is not high enough to fill close the deficit. That is what is going on here, they are trying to buy Silentnight, but it is less than worthless if they have to take the liabilities. The buyer can just walk away, there is compunction on them to buy it. In theory, the pension scheme itself could take over the company if it thought that were in it's best interest. However, this buyer is telling the scheme, I offer you this much money to remove all liabilities if I takeover this company, and if you don't agree, I won't buy Silentnight.

What happens now is that without a backer, the scheme will be run by the PPF. Those retired will get their pensions in full. Those working, including those with many years of contributions, will likely get a pittance. A fairer way would be for those retired to take a reduction on their entilement as well, leaving a larger share for those unlucky enough to be working when the scheme fails.

looking at silentnight the buyers only want to offer 6p in the £ for the pension liabilities . So there is a liabilitie of £ and they want to pay that £ off with 6p why ?

Either the money in the pension scheme has been used for other reasons ( which means the company has had the money out over the years ) or they want to take a lump of money and only pay 6% of its value either way the money people paid into their pensions plus the tax relief that the tax payer has added and any money that the firm put in over the years as part of an ongoing benefit has been rippped off . THIS KIND OF PRATCTICE IS THEFT no matter how they dress it up it is theft .

You still have not answered the question I asked which is how do they close these schemes down in a fair and controlled way ?

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looking at silentnight the buyers only want to offer 6p in the £ for the pension liabilities . So there is a liabilitie of £ and they want to pay that £ off with 6p why ?

Either the money in the pension scheme has been used for other reasons ( which means the company has had the money out over the years ) or they want to take a lump of money and only pay 6% of its value either way the money people paid into their pensions plus the tax relief that the tax payer has added and any money that the firm put in over the years as part of an ongoing benefit has been rippped off . THIS KIND OF PRATCTICE IS THEFT no matter how they dress it up it is theft .

You still have not answered the question I asked which is how do they close these schemes down in a fair and controlled way ?

The prospective buyer of the company is saying that they will only buy the company if the pension scheme accepts a payment of 6p in the pound (I assume you are right on that amount) of the amount owed by the company to the pension scheme. If the pension scheme don't like it, the prospective buyer can walk away.

The money in the scheme has not been used for other reasons. The deficit will be caused by increases in longevity and poor investment returns, there is no crime here that I can see.

As I have said before, a fairer way to wind up the screen is to pay out the assets of the scheme according to what was paid in and when by scheme members. The current system of insolvency with pensions gives preference on that payout to those already drawing their pension. I think it is right that this group should not have preference over those pension scheme members still working, that is how to wind up the scheme fairly.

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The prospective buyer of the company is saying that they will only buy the company if the pension scheme accepts a payment of 6p in the pound (I assume you are right on that amount) of the amount owed by the company to the pension scheme. If the pension scheme don't like it, the prospective buyer can walk away.

The money in the scheme has not been used for other reasons. The deficit will be caused by increases in longevity and poor investment returns, there is no crime here that I can see.

Crap

The company has had the money away over the years you know that I know that and everyone else knows that . Poor investment returns ? what have they been doing with it investing it in lottery tickets and one arm bandits. Any company that has a pension scheme and gets a return of -94% including compound interest and growth should not be in bussiness. Are you really trying to tell me people have started to live that much longer .

If longevity was the reason for the defict why has this not been addressed before . What age are the former workers now claiming their pensions living to 150+ ?

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Pensions, what a mess. Yet another great example of how meddling makes things worse.

Here is the problem. A company is worth £100. The pension fund attached to it is worth -£200. You are not allowed to dump your pension scheme, or cut the benefits, so the pension scheme busts a profitable company, one that is actually making something and doing something and generating wealth.

No it isn't. It has been profitable because it hasn't been paying its full externalities and costs, i.e. by not funding the pension scheme adequately. This has allowed it to out-compete perhaps more efficient but less dishonest organisations.

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Crap

The company has had the money away over the years you know that I know that and everyone else knows that . Poor investment returns ? what have they been doing with it investing it in lottery tickets and one arm bandits. Any company that has a pension scheme and gets a return of -94% including compound interest and growth should not be in bussiness. Are you really trying to tell me people have started to live that much longer .

If longevity was the reason for the defict why has this not been addressed before . What age are the former workers now claiming their pensions living to 150+ ?

No, the company hasn't taken that money. If you know different I suggest you inform the police.

I am not sure you really understand how huge pension liabilities have become. In order to provide an income of £10000 a year, you need a capital sum of around £300000 plus. And yes, longevity increases have been surprisingly high.

And the reason they haven't addressed the longevity problem before is this. One solution is to kill people. They can't do that. The other is to pay more money into the scheme, but there was no money.

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No it isn't. It has been profitable because it hasn't been paying its full externalities and costs, i.e. by not funding the pension scheme adequately. This has allowed it to out-compete perhaps more efficient but less dishonest organisations.

It was never required to create a defined benefits pension scheme, it must have done so by choice a long time ago. It would be competing with those who hadn't created such schemes, and so hindered itself. In other words, it's profitability has been hindered because it has been more generous than others when providing pensions.

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Pensions, what a mess. Yet another great example of how meddling makes things worse.

Here is the problem. A company is worth £100. The pension fund attached to it is worth -£200. You are not allowed to dump your pension scheme, or cut the benefits, so the pension scheme busts a profitable company, one that is actually making something and doing something and generating wealth.

The company's present profitability is dependent on the labour undertaken previously, which was done on the basis of pension benefits as well as immediate remuneration. In effect, they borrowed money from their employees rather than the bank.

It's therefore wrong-headed to separate the pension liabilities from its current profitability.

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The company's present profitability is dependent on the labour undertaken previously, which was done on the basis of pension benefits as well as immediate remuneration. In effect, they borrowed money from their employees rather than the bank.

It's therefore wrong-headed to separate the pension liabilities from its current profitability.

The current owners cannot separate the two. there is no money. Someone has offered to buy the company on certain terms. The. Pension fund trustees have a choice to accept that offer or not. If they accept it, then what is the problem?

As for the current profitability of the business, it clearly isn't enough to close the deficit. Pension funds are always a risk, no guarantees they will pay out all they owe. Companies that didn't offer such schemes have a clear edge over those that didn't.

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No, the company hasn't taken that money. If you know different I suggest you inform the police.

I am not sure you really understand how huge pension liabilities have become. In order to provide an income of £10000 a year, you need a capital sum of around £300000 plus. And yes, longevity increases have been surprisingly high.

And the reason they haven't addressed the longevity problem before is this. One solution is to kill people. They can't do that. The other is to pay more money into the scheme, but there was no money.

Even at the present low rates offered by pension companies you can get near to 6% with an annuity if you shop around , so £300k would buy £18,000 of pension not £10,000 , but that is just acedemic to what we are talking about here . As peoples pensions would depend on lenght of service and payments made . What we are talking about here is why the pension pot only has 6% of what it needs to fund the pensions .

Ask you again where has the money gone ?

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Companies that didn't offer such schemes have a clear edge over those that didn't.

Nope

Companies that offered such schemes and put the money paid in aside do not have a problem with their pension liabilities.

You could say that companies that did not have schemes had the edge as their cost base was lower , however they might not have attracted and kept the best staff for them to prosper , just like saying a company that had lower wages has an edge which is not always the case as low wages cannot attract and keep good staff .

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Even at the present low rates offered by pension companies you can get near to 6% with an annuity if you shop around , so £300k would buy £18,000 of pension not £10,000 , but that is just acedemic to what we are talking about here . As peoples pensions would depend on lenght of service and payments made . What we are talking about here is why the pension pot only has 6% of what it needs to fund the pensions .

Ask you again where has the money gone ?

I thought they were offering the pension 6p on the pound as an offer to the scheme, I haven't read anywhere that there was a 94% shortfall on total assets and liabilities.

The reasons for the shortfall are many, but the two biggest reasons by far are poor investment returns, and larger than expected liabilities due to increased longevity.

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I thought they were offering the pension 6p on the pound as an offer to the scheme, I haven't read anywhere that there was a 94% shortfall on total assets and liabilities.

The reasons for the shortfall are many, but the two biggest reasons by far are poor investment returns, and larger than expected liabilities due to increased longevity.

Your getting a bit lost here .

Either to take the pension scheme over and only give out 6p in the £ means that the assetts of the scheme are 94% less than liabilities or they want to take the pension scheme over for far less than it is worth .

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  • 312 Brexit, House prices and Summer 2020

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