The Pensions Regulator has warned defined-benefit scheme sponsors that pension funds must be treated equally with other competing priorities when company assets are allocated.
The warning follows a statement from the regulator last week confirming that struggling employers would be given “breathing space” to pay back pension deficits over a longer period of time.
The TPR said: “The pension scheme should be equitably treated among the competing demands on an employer. Where cash is being used within the business at the expense of what otherwise would have been affordable pension contributions, it is important that it is being used to improve the employer’s covenant rather than benefits accruing disproportionately to other stakeholders.
“Most employers can afford appropriate dividend payments without prejudice to the funding of the pension scheme. However, if there is substantial risk to the likelihood of the pension scheme delivering the benefit entitlements promised within it, then dividend payments need to be reassessed in light of the obligations to the pension scheme and other creditors.”
The regulator rejected calls from some in the industry to incorporate an allowance for an anticipated improvement in economic circumstances within its technical provisions.
The technical provisions set out the amount of money required to cover a pension scheme’s liabilities.