Companies are using an insolvency practice to offload £3.8 billion of pension liabilities, with many schemes falling on the pension lifeboat fund as part of a sale to the firm’s directors.
An investigation by the Financial Times found 17% of the 868 schemes managed by lifeboat scheme the Pension Protection Fund (PPF) were the result of a so-called ’pre-pack’ administration.
The FT found that two in three pre-pack schemes entering the PPF involved sales to existing owners or directors.
A number of companies that had used pre-pack administration were still in business. The FT name turkey producer Bernard Matthews, the bed company Silentnight and the textile group Bonas among those trading firms that had used pre-packs.
Frank Field MP, chair of the work and pensions committee, said the findings raised: ‘real concerns about whether adequate protections are in place to prevent schemes being dumped on the PPF, at cost to pensioners and levy-payers… We intend to pursue these issues further as part of our ongoing work on DB pensions.’
However, the PPF said there was no serious problem with the use of pre-packs and said three of the examples the FT had used had been part of restructuring arrangements agreed by the Pensions Regulator.
This may sound familiar to advisers who are inflicted by the phenomenon of phoenix firms, a legal practice whereby liabilities for complaints fall on the compensation scheme of last resort, the Financial Services Compensation Scheme (FSCS), as directors set up new advice firms.
Indeed, New Model Adviser® revealed last year that the directors of a firm declared in default by the FSCS had used a pre-pack administration to buy the assets of the collapsed firm and continue trading as an advice firm.
Alderley Asset Management was declared in default by the FSCS last May 2015. Documents filed at Companies House indicate how the directors of the firm were able to buy the assets of Alderley Asset Management and continue trading under the name TPD Wealth Management.
A deal was agreed to sell the business to TPD Wealth Management, a company owned by two of the directors of Alderley Asset Management at the time it entered administration.
Companies House documents suggest the Financial Conduct Authority was at least aware of the process that was going on.
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