Regulator warns against giving shareholders priority

Employers that prioritise paying dividends to shareholders rather than addressing defined benefit pension scheme deficits could face investigation by The Pensions Regulator.

In its annual funding statement the regulator said it would be ‘likely to intervene’ when it believed schemes were not being treated fairly. It reminded trustees of the employer’s ‘legal obligations’ to the scheme as a creditor and that these should be recognised ahead of shareholders who have ‘no legal entitlement to dividends’.

It added: ‘We expect schemes where an employer’s total distribution to shareholders is higher than deficit reduction contributions being paid to the pension scheme to have a relatively short recovery plan ... that does not rely excessively on investment outperformance.’

Stephen Scholefield pensions law expert at Pinsent Masons said: ‘The relationship between dividend payments and deficit contributions has been under the regulator’s eye for some time now and is already monitored by...