BVCA warns of pensions crisis

The industry’s representative has warned that proposed amendments to the Government’s Pensions Bill could pose a significant threat to the future of the UK private equity industry.

The British Venture Capital Association (BVCA) has written to the UK Government, calling for proposed amendments to the Pensions Bill, which are currently going through parliament, to be dropped.

The proposed amendments to sections 35 and 40 of the bill, which were designed to stop companies from transferring pensions liabilities to the Pension Protection Fund (PPF), could have a debilitating knock-on effect on the private equity industry, according to industry participants.

Under the proposals, a pensions regulator would be appointed, with wide-ranging powers from January 2005 to ensure that pension funds don’t have large holes in them. 

The regulator, who would have retrospective powers dating back to June 2003, could plug gaps in under-funded pension schemes by forcing directors and shareholders of a company to make good any shortfalls if that company purposely disposes of money that should have gone to the pension fund.

The potential implications for the private equity industry are stark. If the legislation is passed in its proposed format, fund investors are unlikely to be willing to invest in UK private equity partnerships that would face the prospect of being liable for potentially huge deficits in these companies. It is likely that the paying of dividends or transferring of assets could be construed as depriving a pension fund.

John Mackie, chief executive of the BVCA, said in the letter: “We believe (the changes) could have a disastrous effect on our members’ ability to raise capital for investment, particularly from the US. Private equity firms could be exposed to unlimited liability for shortfalls in pension provision.”

The proposed retrospective nature of the regulator’s powers is likely to be challenged should the bill be passed, but the implications for the UK private equity industry are wider reaching.

In an interview with PrivateEquityOnline, Wyn Debyshire, pensions partner at London law firm, SJ Berwin, commented: 'At the very least, the proposals would put a significant brake on M&A activity, with deals becoming very expensive or uneconomical to do. It doesn't look as if anyone has costed these proposals in either social or economic terms.'