New pension regulator powers could hurt M&A

By Simon Challis

LONDON (Reuters) - Proposals to beef up the powers of the pensions regulator to make companies put more money into their schemes could threaten M&A deals and even make firms think twice about refinancing, pension consultants argue.

"This is dynamite. It could bring about a sea change in how the regulator operates," said Jerome Melcer, a partner at pensions advisory firm Lane Clark & Peacock.

The proposals, announced on Monday, would allow the regulator much more freedom to intervene where it believes companies are acting against the interests of members of their occupational pension scheme.

The government's stated aim is to clamp down on unscrupulous buyout firms which acquire a pension scheme to run it for a profit, severing the link between the employer and the pension scheme and leaving scheme members vulnerable in the process.

But the proposals are likely to have a much wider impact, argue pension consultants.

The government changes represent a dramatic increase in the regulator's powers, enabling it in future to direct a company to pump in more cash to its pension scheme simply if the effect of its actions posed a risk to scheme members.

"Until now, the Regulator's sights have been trained on companies that deliberately set out to weaken the security of pensions schemes," said Rashpal Bhabra, head of corporate consulting at Watson Wyatt.

"This announcement would change the rules, empowering the Regulator to come after companies and directors whose actions have an adverse effect on the pension scheme even where this was not the intention," said Bhabra.