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Banking Act 2009
The Banking Act 2009, which came into force on 21 February 2009, sets out a special resolution regime which provides the Government with special powers ("stabilisation powers") to deal with banks affected by the financial crisis.
Effect on pension schemes
On the face of it, the Banking Act gives wide powers in relation to bank pension schemes.
Section 71 of the Banking Act gives wide powers for an order or instrument made under the Act to make provisions relating to pensions schemes.
In particular, it provides that an order or instrument may:
- modify any rights and liabilities;
- apportion rights and liabilities;
- transfer property of, or accrued rights in, one pension scheme to another (with or without consent).
Such a provision may (but need not) amend the terms of a pension scheme. Treasury consent is needed where any share or property transfer instrument makes use of this provision.
There was a certain amount of debate about section 71 when it passed through the Lords, and the Lords received assurances that it was not the intention to affect accrued rights. However, this is not expressly stated in the final version of the section.
There is some comfort in that the Act requires the relevant authorities (i.e. the Treasury, the FSA and the Bank of England) to have regard to certain "special resolution objectives" when considering the use of the stabilisation powers, or the bank insolvency or administration procedures. One of these objectives is "to avoid interfering with property rights in contravention of a Convention right (within the meaning of the Human Rights Act 1998)". These include:
- to protect and enhance the stability of the financial systems of the UK (including in particular the continuity of banking services);
- to protect and enhance public confidence in the stability of the financial systems of the UK;
- to protect depositers; and
- to protect public funds.
The Government has built a great deal of flexibility into the framework special resolution regime, to allow it to deal with individual circumstances as they arise. It is not therefore possible to give any real assessment as to how it would exercise its powers in specific circumstances. Even past examples of Northern Rock and Bradford & Bingley must be regarded as one-offs rather than precedents and therefore give no true guide as to how the Government might act in subsequent cases.
Author: Fiona Franklin