Tuesday 9 August 2016 6:00 am

Pensions Regulator's powers must be strengthened so it can crack down on those avoiding responsibilities

Pensions are in a pickle. The deficits of private sector schemes are ballooning on the back of rising longevity and interest rates plunging to record lows. The sheer scale of the black hole in defined benefit, or final salary, schemes has prompted senior MPs to call them “the greatest challenge facing longstanding British businesses”.

Why so? Their liabilities are promises of deferred pay to employees and must be funded, either through greater investment returns or costly top up payments. It was the crisis that engulfed BHS which threw the issues facing defined benefit pension schemes and members into sharp relief. The retailer had a blackhole in its pension schemes of £571m when it collapsed in April.

Read more: Green and Pensions Regulator “like punch-drunk fighters” says MP

The schemes are now being assessed for entry into the Pension Protection Fund (PPF), the so-called pensions lifeboat. Payouts to BHS pensioners could be cut. The BHS situation stuck in the craw for many because those in charge at the retailer as the deficit built up were able to walk away from the company with seemingly little or no obligation to do right by members.

That suggests a fundamental failure in regulation and governance. The concern is such that MPs on the Work and Pensions Select Committee yesterday issued a call for evidence for an inquiry on the state of defined benefit pensions, with the roles of the pensions watchdog and lifeboat thrust under the microscope.

The MPs say it is imperative that the regulatory framework does not allow sponsor companies to evade their responsibilities. Defined benefit schemes must be placed on a sustainable footing. However, they recognise that onerous pension contributions could affect the viability of previously healthy companies.

Read more: Frank Field has met with SFO's director to discuss BHS and Sir Philip Green

It may be a tricky balancing act, but ultimately the powers and resolve of the Pensions Regulator should be strengthened so it can act early, quickly and firmly with those who seek to avoid their pension responsibilities.

The former chair of the PPF Lady Barbara Judge goes further, saying the regulator should be able to block deals that may put pension payments in jeopardy. The bottom line is that the lessons of BHS must be learnt. Otherwise the retirement dreams of thousands of people risk being shattered.

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