Insurers warned to prepare for million pound claims from new pensions legislation

Insurers must brace themselves for claims worth millions of pounds when new pensions legislation comes into force in April, a leading law firm has warned.

Under the Pensions Act [2004], company directors can be personally liable if pension schemes are under-funded. The liability will be unlimited and could run into millions of pounds.

Directors' and officers' (D&O) and pension trustee insurers could face claims from directors who have been required to contribute under the Act, according to law firm Reynolds Porter Chamberlain.

Under the legislation, the Pensions Regulator will be able to issue a 'contribution notice' against an employer or a person connected with the employer, such as a company director. The notice will require that person to pay the debt to the pension fund.

Reynolds Porter Chamberlain partner Julian Aylmer said: "Directors may be able to claim under their D&O insurance as they can be required to contribute even when their action has not been dishonest and therefore they will not be automatically excluded from cover."

Aylmer said insurers must act now before the legislation comes into force: "Underwriters must consider it. They must either exclude it or cover it and charge higher premiums."