UK - Powers given to the new government regulator of the Pension Protection Fund (PPF) should be restricted to prevent a further shift away from final salary pension provision, warns Mercer Human Resource Consulting.
New moral hazard clauses have been included in the Pensions Bill to prevent companies from shifting their deficits to the PPF.
But Mercer said the powers the powers that these clauses give to the new pensions regulator go “too far”, as they are not restricted to deliberate attempts to pass pension deficits to the PPF.
Mercer’s European partner Tim Keogh said: “We generally agree that the moral hazard clauses are necessary if the PPF levy cost is to be kept anywhere near the government’s target of £300m. Without these clauses, sponsors of defined benefit pension schemes could face far higher levy costs.
However, he pointed that the regulator has a duty to protect the PPF and scheme members and under new clauses introduced it could take legal action against poorly capitalised companies whose scheme assets are less than the insurance buyout cost of the benefits, as is generally the case.
Keogh warned that this could deter some investors and could even pose a threat to the survival of some companies, which would defeat the government’s purpose of avoiding such a situation when it proposed the PPF and scheme-specific funding.
He added: The regulator should not be given such far-reaching powers, which could result in the back door introduction of a much stronger funding standard aimed at some of the companies least able to handle it. More employers would move away from final salary schemes as soon as they could, and cease future accruals as soon as possible.
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