UK - Industry players have commended the pensions regulator for "coming down off the fence" on proposals for scheme funding but voiced concerns over some key issues.
Following the pensions regulator’s consultation on pensions scheme funding, Mercer HR worldwide partner Tim Keogh (pictured) said: “The regulator has come down from the fence and said that, while there is no single answer to what constitutes sensible and prudent funding, it has specific ideas on suitable measures.“
Keogh said a key issue would be the extent to which trustees feel obliged to seek funding at or above the level that attracts regulatory attention. Presumably the authorities want trustees to push for funding at this level, but do not wish to mandate this explicitly, said Keogh.
The proposals will introduce new challenges for trustees. The regulator will be looking for a funding target of 70-80% of the full buyout cost, which is typically at least equivalent to full funding under FRS17.”
As a result of this new guidance, schemes may be less reliant on scheme-specific funding measures in favour of more objective measures like the FRS17 funding level and the basis used to determine the Pension Protection Fund (PPF) levy, he said.
We welcome the increased emphasis on objective funding measures as they tend to be more transparent and allow the negotiation between trustees and employers to focus on outcomes not the frame of measurement.
Speaking about the issue of funding levels, Hewitt pension consultant Richard Mulcahy said there was a need for simplistic trigger points to help the Regulator focus its investigation efforts, but added that he hoped the regulator would be “more sophisticated in its potential follow-up. We would also that it is pragmatic when choosing to take any action,” he said.
Research from Hewitt suggests that most schemes historically would have fallen below the screening thresholds specified. However, the regulator is anticipating a general strengthening of funding assumptions so that significantly fewer schemes will be subject to investigation, said Mulcahy.
“For many companies and schemes, there could be perfectly justifiable reasons for being below the Regulator’s thresholds. The last thing those schemes need is the distracting burden of regulatory intervention - or even enquiry - which might have been unnecessary in the first place.”
This week's edition of Professional Pensions is out now.
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