Government mulls handing watchdog more powers over struggling pension schemes, but experts warn suggestions not enough to prevent another BHS-style fiasco

The government is considering handing the pensions watchdog more powers to regulate struggling or badly governed pension schemes.

The Department for Work and Pensions' green paper on 'Security and Sustainability in Defined Benefit Pension Schemes', which was published today, is asking for feedback on a variety of pension issues. These include whether to extend the Pension Regulator's powers to allow it to step in and support employers which are having problems keeping their scheme afloat, to separate pension schemes from ailing companies or to wind up schemes in specific circumstances.

Other ideas on the table include imposing stricter requirements on employers with significant resources to plug pension deficits in a timely manner and setting up guidance for maintaining pension schemes, which sponsors and trustees must either comply with or explain to the regulator why they have not.

However, Steve Webb, former pensions minister and now director of policy at Royal London, slammed the suggestions for not having enough teeth.

"Even in the area of trying to avoid a repeat of the BHS fiasco, the green paper is remarkably timid on the idea of giving the regulator more power to challenge takeovers which could damage a pension scheme," Webb said.

BHS' collapse brought defined benefit pension schemes to the public's attention, as the retailer had a pension deficit worth £571m when it fell into administration last April. The high street chain's administration also sparked two parliamentary inquiries.

"Rightly, the government identifies the biggest risk to scheme members as the collapse of the sponsoring employer, but there is a broader risk of employers failing to take proper responsibility for their schemes," said Frank Field, chair of the Work and Pensions Committee, which ran one of the inquiries. "In the case of BHS, while the final collapse was triggered by sponsor insolvency, the fundamental cause was a lamentable failure of corporate governance and abdication of responsibility to scheme members.

"We hope that the legislation that results from this, combined with the government’s consultation on corporate governance, will mark a clear shift towards ensuring that more companies are better governed, in the interests of all of those who depend on them."

Another suggestion in today's green paper was to hand employers more flexibility to switch from retail price index for indexing their schemes to consumer price index.

Tom Selby, senior analyst at AJ Bell, cautioned such a move could effectively pull £90bn in benefits from pension scheme members' pockets.

"Clearly the case of BHS and Sir Philip Green looms large here, but equally ministers will be concerned about generating headlines suggesting accrued rights are under threat," Selby said. "Pension promises already built up have historically been sacrosanct, so even a seemingly innocuous reduction in benefits could be viewed as the thin end of the wedge and stir up controversy."

Most of the UK's 5,794 defined benefit pension schemes are currently in deficit. However, the government in its green paper noted it had found little evidence to suggest the schemes were ultimately unaffordable and many employers could clear their pension deficit if required.

The consultation remains open for feedback until 14 May.