UK - Delays over scrapping the MFR could be a sign the government sees the trend away from DB schemes as unstoppable, Towers Perrin believes.
Proposals to replace MFR were published in March, but the government’s current line on reform is that legislation will only happen when parliamentary time becomes available. This is not expected to occur until 2002-03 at the earliest.
Towers Perrin partner Mark Duke said: “Even if the MFR were fixed, changed or abolished now, I do not think it would materially affect the trend of companies to get out of final salary plans.
“Part of me wonders whether the government has not recognised that the trend is inexorable and that frankly the MFR might be a bit of a side show.”
Actuaries have expressed anger that the government has not brought in any interim measures on modifying or replacing MFR.
Gissings director of corporate affairs, Rodney Jagelman, said: “There is a strong argument for a quick fix. It would keep us going for a couple of years while people think of what is really needed.”
He added: “The government is not taking it very seriously as far as I can see.”
Jagelman warned that rather than pouring money into maintaining pension funds companies might decide to close them instead.
He said: “There is a danger that companies will make some pretty serious decisions that affect peoples’ long term pension rights on the basis of short term pressures that arise from a defective MFR.”
Chairman of the Pensions Board Peter Tompkins said: “One of the things we in the actuarial profession are continuing to argue for is a cut in the level of dividend yield in the MFR.
“We think it is responsible to make that change to reflect the lower payout that companies are making because it is becoming a harder and harder test.”
Tompkins added: “The government did not take that up when we recommended it two years ago and it remains to be seen whether they will take it up now.”
By David Rowley
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