UK - Employers could use the minimum funding requirement replacement to pressurise trustees and actuaries into cutting pension contributions, consultants fear.
The government unveiled its plans to replace the MFR with a “long-term scheme-specific funding standard” last September. But consultants believe the discretionary nature of the replacement will allow companies to cut contributions at a time when deficits are growing.
Mercer Human Resource Consulting senior consultant Deborah Cooper said: “At least with the MFR, trustees and actuaries have a regulatory stamp of approval when they go to the company and say that there is a minimum the company must do.
“With the scheme-specific standard, that safe harbour has potentially been removed.”
Gissings director Alan Smith said that there was “always tension” between employers and trustees over the issue.
But he added it was imperative for the two sides to find middle ground because it was “no good having a well-funded scheme if everybody loses their jobs because the employer goes out of business”.
However, PricewaterhouseCoopers partner Peter Tompkins dismissed those fears and claimed firms are not concerned about cutting contributions.
He said: “It doesn’t matter what you put into your fund, it’s what comes into your accounts. Finance directors are not worried about contributions as it is a cashflow decision, not a cost for your reports and accounts.
“If you’re one of those technology companies running out of cash, you won’t be terribly keen on raising more cash to put into your pension fund. But if your revenues flow well, you do. It’s not a big issue.”
And Deloitte & Touche head of investment services Tony Osborn-Barker claimed the MFR replacement would lead to employers putting more into their schemes.
He said: “If anything, the scheme-specific standard they set could be stronger than the MFR. If you’re guaranteeing the membership that enough money is going in to the scheme, you are going toerr very much on the side of caution.”
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
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