Protecting pension savers is crucial. The Robert Maxwell scandal first highlighted how lax regulation of occupational pension funds could see members being cheated.
More recently, many thousands of people have lost out because employers have gone under, leaving an underfunded pension scheme behind them.
It was precisely these dangers that prompted the creation of the Pensions Regulator.
But how well have staff at Reader's Digest UK been served by the regulator? Its US parent company had offered to pay £11m into the UK pension fund, to make a start on tackling its £125m deficit. But while Reader's Digest has convinced the Pension Protection Fund, the compensation scheme, to sign off on this plan, the Pensions Regulator is not convinced.
As a result, more than 100 staff now face the possibility of losing their jobs, with the US choosing to pull the plug on its UK business, rather than making the regulator a better offer.
Those employees who are members of the pension scheme were no doubt anxious for reassurance that retirement benefits would be safeguarded.
It's not just their jobs that are under threat. If their pension scheme is eventually moved into the Pension Protection Fund, their retirement incomes will be capped at 90% of their true value. Only current pensioners get 100% protection.
The Pension Regulator may well be right in its view that Reader's Digest's pension proposals exposed scheme members \[Shane Donaghey\]— and the compensation fund — to too great a risk of default over the next few years. But one could see employees taking the risk if the only alternative was to lose their jobs.
A buyer may emerge while the business is in administration. And note that the Reader's Digest scheme has 1,600 members, most of them no longer employed by the company — they may have a different view to
staff on how the pension fund's future should be safeguarded.
Nevertheless, the regulator's tough line will be controversial. Chairman David Norgrove said last year: “There is no reason why a pension scheme deficit should push an otherwise viable employer into insolvency.” Yet this is exactly what seems to have happened here.
The Reader's Digest affair has worrying implications for larger firms. Take BA, for example, which thinks alliances such as its merger with Iberia are its best hope of securing a viable future. The Spanish airline has the option of walking away from that deal should BA have to increase contributions to its pension scheme, which is in deficit.
Or look at BT, where the regulator only last week expressed “substantial concerns” about the company's plans to make good a £9bn deficit over 17 years. It could yet scupper those proposals, throwing BT into disarray.
The regulator has a duty to be robust as it works to safeguard the interests of scheme members.
It is during tough economic times that pension savers are most vulnerable to the collapse of a sponsoring employer — but there isn’t much point in driving firms out of business in the name of strong regulation.