Meet the man the Square Mile loves to hate

David Norgrove may look like the archetypal mild-mannered public servant but, for much of corporate Britain, as chairman of the Pensions Regulator he is blamed for everything from the dramatic fall in yields on government bonds to the collapse of a range of bids and deals. Not bad given that his office has existed for just 10 months and he has only just finished consulting about the implementation of what are likely to be his most radical plans - the funding of pension schemes.

'We are one of the things which have focused minds on the cost of pensions,' he admits, but says the issues dogging the industry - increasing life expectancy, falling interest rates, rising deficits and improved disclosure requirements - have been building for more than 15 years. Yet there is little doubt that he has been much more proactive on deficits than the Occupational Pensions Regulatory Authority, which his office replaces. Combined with new accounting rules that require companies to disclose the extent of their pension fund deficits, the result is that pensions have leapt to the top of the corporate agenda.

His most obvious impact has been on bids and other corporate activity. Companies are required to inform the regulator if they are contemplating anything that could have an impact on pension scheme members, from selling the company to paying a special dividend.

'Clearly, the issue of pensions has moved near to the top of the list of things to worry about [in corporate activity],' said Martin Slack, senior partner of actuaries Lane Clark and Peacock. Previously, pension issues were almost the last thing to be thought about.

Companies are not enthusiastic: some, such as British Airways, have worried openly if the regulator's attitude to its deficit - at £1.4bn, one of the biggest on the stock market - could hamper its ability to resume dividend payments; others prefer to moan in private about the risk that the regulator will constrain their ability to invest for the future.

David Robbins, a partner at accountancy firm Deloitte, says the biggest impact has been on private equity deals. The regulator is typically requiring a contribution of up to half the amount of the deficit, as measured by the FRS17 accounting standard, as the price of clearing a deal. Because private equity deals generally have large amounts of debt and very little equity, the requirement to inject equity into the pension fund is a real deterrent.

Norgrove is unrepentant: 'The fact that a company has a deficit does limit its ability to do certain things - for example, pay a special dividend. Why should shareholders take precedence over pension fund members?'

The most dramatic example of regulatory intervention was with Marconi, the electronics company which was required to allocate an extra £675m to its pension fund - more than six times the £109m accounting deficit - after it sold most of its operations to Swedish group Ericsson. But Norgrove says Marconi should not be seen as typical: the transformation from the GEC engineering conglomerate to a technology business had a big impact on its employment patterns, leaving it with about 5,000 employees and almost 70,000 pension scheme members.

'After the Ericsson deal, it is a very small company supporting a very large pension fund,' he says. And he had to be sure the residual company was able to meet its future liabilities.

Pension experts say that the situation on deals is already becoming clearer: 'In six to 12 months' time, everyone will have a clearer idea of what will get the green light,' says Slack. 'It is happening now - the regulator seems to be looking for funding to be brought to the minimum level within three to five years, and that is now being factored into deals before they get to the regulator.'

The next issue, on funding of pension schemes, could be a far bigger issue. Investors are already worried: Keith Jones, chief executive of Morley Fund Management and chairman of the Association of British Insurers' investment committee, warned last week of a risk of 'misallocation of capital on a grand scale. At the worst, many companies could be driven to put so much cash into their pension schemes that nothing is left for the creation of jobs and investment, which is vital to generate the wealth needed to meet their pension promises'.

Norgrove tries to be reassuring: 'The aim is to have risk-based regulation, not tick-box supervision. We will concentrate where there is the biggest risk. But that does not necessarily mean we will look for changes in what has been agreed [between the company and its pension fund trustees]. It could be that forcing the company to pay faster is damaging to the company, then there will be no point. The best guarantee [pension fund] members have is to have a solvent company sponsoring it.'

He points to research commissioned by PWC last year which indicated that, if companies were forced to eliminate their deficits within 10 years, most should be able to do it. But Jones says that the report indicated that, to clear the deficits within that time period, one company in five would have to commit more than the entire free cashflow generated by their business.

Slack says that, until now, most trustees have had little real control over how much companies pay into their pension schemes: now they will have much more say. 'They will have to think carefully as [contributions] could have a severe impact on the cashflow and the ability of companies to invest for the future and pay dividends.'

The greater focus on pension deficits has encouraged pension funds to rush for the safety of gilts, rather than riskier shares, for their portfolios. That is pushing the price of gilts to what some observers regard as dangerous levels - and they blame the regulator for creating this situation.

Once again, Norgrove begs to differ: gilt prices are being driven by international pressures, including the high savings rates and looser monetary conditions. Even Alan Greenspan, the legendary chairman of the United States Federal Reserve, who retires on Tuesday, has been unable to solve this particular conundrum, so, as Norgrove asks: 'Who am I to try?'