UK proposals to beef up the powers of the pensions regulator to make companies put more money into their schemes could threaten M&A deals and even make firms think twice about refinancing, pension consultants argue.

"This is dynamite. It could bring about a sea change in how the regulator operates," said Jerome Melcer, a partner at pensions advisory firm Lane Clark & Peacock.

The proposals, announced on Monday, would allow the regulator much more freedom to intervene where it believes companies are acting against the interests of members of their occupational pension scheme.

The government's stated aim is to clamp down on unscrupulous buyout firms which acquire a pension scheme to run it for a profit, severing the link between the employer and the pension scheme and leaving scheme members vulnerable in the process.

But the proposals are likely to have a much wider impact, argue pension consultants.

The government changes represent a dramatic increase in the regulator's powers, enabling it in future to direct a company to pump in more cash to its pension scheme simply if the effect of its actions posed a risk to scheme members.

"Until now, the Regulator's sights have been trained on companies that deliberately set out to weaken the security of pensions schemes," said Rashpal Bhabra, head of corporate consulting at Watson Wyatt.

"This announcement would change the rules, empowering the Regulator to come after companies and directors whose actions have an adverse effect on the pension scheme even where this was not the intention," said Bhabra.

The proposals could threaten takeovers that involve even modest amounts of debt.

"Any sale of a business where the buyer has more debt than the seller could arguably be an act which could harm members' benefits within the new definition," Melcer said.

A wide array of everyday corporate moves could also attract the attention of the regulator in future.

"Under the changes, perfectly normal business activities such as refinancing, dividend payments and restructuring may now be at serious risk of regulator action, said Louise Inward, head of the pensions team at PwC.

GETTING EXTRA POWERS

Although the government said the changes were aimed at unregulated buyout firms which have begun competing with FSA-regulated insurers, the regulator may have seized an opportunity to get rid of current restrictions that effectively limited its powers, argue pension experts.

Since its creation in 2004 the regulator has succeeded in imposing an order to provide funding to a pension scheme in only one case, that of troubled shipping-to-rail firm Sea Containers .

The need for the regulator to prove to an independent tribunal, the Determinations Panel, that deliberate malpractice has taken place may have prevented the watchdog from forcing other companies to stump up cash.

"I strongly suspect they have had situations where they wanted to push through CNs (contribution notices) but the burden of proof in front of the Determinations Panel was too high for them even to attempt that," said Melcer.

"This is (the regulator's) attempt to repaint the lines on the pitch to allow it to get back into control," Melcer said.