Pensions police get more teeth

What has rung the alarm bells in Whitehall is the possibility that companies might be taken over and the operating business then sold on, leaving the pension fund behind and without any financial backing. The ministerial line is that it needs to act to protect pension funds from the possibility that they might be transferred to companies which don't have the resources to support them - so called non-insured vehicles - by giving the regulator significantly greater power to force companies (or in certain circumstances the directors personally) to put funds into the pension schemes.

Few would object in such circumstances, but the small print suggests the rule change will cut much deeper and catch a far wider range of corporate activity. According to lawyers Wedlake Bell the rules, if introduced, could have a chilling effect on everything from share buybacks to the sales of subsidiaries, from inter-company loans to public to private transactions.

This is because even if deals are done in good faith, if something subsequently happens that unintentionally puts the pension fund in a worse financial position, or weakens the employer's ability to support the scheme, it could trigger an immediate demand for more funds from the regulator. This demand will fall on the sponsoring company or, as noted, on its directors.

Previously, demands for funds could only be triggered if companies took intentional action which undermined the solvency of the fund. This gave the pensions regulator a much more restricted power of intervention.

Most pension fund takeovers are by fully insured pension buyout companies - like Paternoster, which coincidentally reported yesterday that it had done £520 million of buyouts in its first quarter. Across the industry as a whole, deals worth £2.5 billion were done, which is more than in the whole of last year. But these firms are regulated by the FSA and operate on insurance company lines, with heavy capital backing.

Underneath the Government move, one suspects there is a deeper fear. With interest rates falling and share prices wobbly, pension deficits could easily balloon again in coming months - indeed only widening spreads on corporate bonds have stopped this happening already. At the same time there must be fears the credit problems will spread from banking into the wider economy, and with sponsoring companies getting weaker in parallel with their pension funds they will be hard-pressed to bail them out.

In tough financial conditions boards may be forced to take drastic action - selling businesses, raising loans, mortgaging assets - to mitigate the impact of the crunch. So this proposal is probably most simply read as a fairly clear message to boards of directors contemplating such actions, that they should not be tempted to think they can get out of trouble by shortchanging the pension fund.

Ombudsman in the dock

It would be a close-run thing, but when pressed most financial firms would probably say they have been more irritated by the Financial Ombudsman Service than by their official regulator, the Financial Services Authority.

This is because while they are, of course, on the side of the angels - in this case the downtrodden consumer - ombudsmen in general, not just the FOS, can sometimes give the disconcerting impression of making it up as they go along.

One result of this, though now confined to the past, was an outbreak of extreme tetchiness between the FSA and the FOS, during which time they could barely speak to each other. Another, more recent, concern has been the growth in numbers of firms left feeling aggrieved even when complaints against them have proved to be unfounded.

This may be about to change. The Court of Appeal will next week hear a couple of linked cases in which the Financial Ombudsman's service will seek to defend its working practices - in particular (in the, perhaps biased, words of the plaintiff), its ability to ignore the law of England in making awards; its regular and systematic refusal of oral hearings; keeping judgments secret so it does not publish its reasoned decisions and levying fees on firms even when they are found not to be at fault.

What is on trial, therefore, is not what the FOS does but the way it does it. It might well be a case we should want the FOS to lose because if it is forced to become more transparent those who would benefit most would be firms that treat their clients well and those who suffer would be those who behave in cavalier fashion and find themselves named and shamed in public hearings. The rights of the consumer would not seem to be affected.

All of which makes it hard to see why the FOS is fighting the case so vigorously.