UK - The Pension Regulator's funding targets may be too high for many employers to afford, Watson Wyatt has warned.
The criticism came after the Pension Regulator published its consultation document on how it planned to regulate the funding of defined benefits.
Nigel Bodie, senior consultant at Watson Wyatt said, although the scheme-specific approach was better than the minimum funding requirement, the regulator’s expectation that the new funding regime should have a significant impact on behaviour would translate into higher contributions from employers.
Watson Wyatt have said that, in practice, the regulator would set targets that approximate to achieving full funding against the accounting standard IAS19 and the benefits would be provided by the Pension Protection Fund.
Based on the regulator’s own estimates, this will require £130bn additional contributions into company pension schemes, spread over no more than 10 years, said Watson Wyatt.
The regulator’s figures show that more than a third of companies with final salary schemes - potentially more than 2,000 according to Watson Wyatt - would have problems in meeting a funding target of covering their accounting liability within 10 years.
The regulator’s strategic development director Charlie Massey said he would welcome criticism from the industry: “We encourage the pensions industry to take part in the consultation and give their views on the way we intend to implement the scheme funding requirements. “Our proposals seek to protect scheme members and the PPF while taking into account the circumstances of the scheme and sponsoring employer.”
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