UK - The Pension Regulator's approach to new funding rules for DB schemes could plunge 20% of UK companies into a "cash-flow crisis", ultimately nullifying the gains of a new scheme specific funding standard, the Confederation of British Industry (CBI ) has warned.
The new funding rules came into force in December 2005, replacing the Minimum Funding Requirement, which should allow trustees and employers to agree funding arrangements that match the individual circumstances of the scheme.
The CBI has stressed funding levels and recovery periods as their two major concerns over the rules.
In a statement made today, the CBI claimed trustees will automatically use the funding triggers as “fixed norms” rather than taking into account a firms’ individual circumstances. In relation to recovery periods, the CBI believed the regulator must be more flexible, with the implied upper limit of 10 years depriving one in five firms of vital cash-flow.
John Cridlland, CBI deputy director-general said: “The regulators proposals to use triggers as a way of identifying those schemes at most risk of not meeting their liabilities are welcome. But the proposed triggers are too rigid and the regulator has got to ensure that trustees realise that the triggers are not hard and fast rules that need to be stuck to come what may.”
The CBI wants a recovery period trigger of 10 to 15 years, with emphasis on the financial strength of a scheme’s sponsoring employer; removal of “buy-out” as a target for funding; more detailed guidance on regulator scheme intervention and greater clarity on how companies can use contingent assets in the new funding rules.
A spokesperson for the Pensions Regulator said the regulator was unprepared to comment on today’s CBI response until it had time to digest the various industry opinions on the new funding rules. Recently, the Association of British Insurers and the National Association of Pension Funds released formal responses to regulator.
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