UK - Britain's decision to base the Pensions Protection Fund on the US Pension Benefit Guaranty Corporation makes no sense, according to White House advisers.
US aides voiced their concerns in meetings organised by right-wing think-tank The Heritage Foundation in a bid to re-establish cross-Atlantic links on pensions reform.
Watson Wyatt senior consultant David Harris – who attended the talks with Australian Labour senator Nick Sherry – said: “The PBGC has run now for 30 years and it has been far from a success story.”
One White House aide asked: “Why does the UK want to adopt a broken wheel?”
The ailing $34bn (£18.7bn) US insurance fund – set up for workers who lost their pensions through company insolvency – is underfunded by $11.2bn.
The Federal Insurance Agency – established in 1974 – is funded via flat-rate premiums by firms with defined benefit pension schemes, the bond asset mix of which is set to drop from 37% to between 15-25%. The remainder will remain in a mixture of equity classes.
Sherry – who is credited with the compulsion reforms in Australia – said Australia never considered a PBGC model based on the associated cost to the employer and the limited benefit it offered. He said: “I am surprised the UK has gone down this path.”
White House aides said they would “closely monitor pension reform developments in the UK”, which they said “contrasted heavily with the German and French systems”.
PricewaterhouseCoopers partner Peter Tompkins agreed that the German insurance fund would be a “far sounder model” for the Pensions Protection Fund.
Tompkins added: “I thought we might end up nearer the German fund when I saw the Green Paper ideas, but I was deeply disappointed to see we are going down a route mimicking the flawed American model.”
PTL has appointed Karein Davie as a client director in its Birmingham office.
The level of interest rate hedging increased to £29.5bn of liabilities in the second quarter as pension funds continued to de-risk, according to BMO Global Asset Management's research.
UK inflation has risen for the first time since November to 2.5% in July, up from 2.4% in June, thanks to rising fuel costs and the price of computer games.
The number of DB pension scheme trustees targeting a buyout with an insurer has increased significantly in the past five years, latest research from Willis Towers Watson shows.