UK - The government has published legislation to help ensure betterdistribution of assets between pensioners and other scheme members when pension schemes wind up with insufficient funds.
The legislation is seen as a stop gap measure, before the Pension Protection Fund is introduced in 2005 which will provide a minimum level of benefit for all members and reduce, although not eliminate the distinction between those above and below pension age.
While these measures do not solve the pensions problems caused by company failure, they help share the pain more evenly, said Tim Keogh (pictured), European partner, Mercer Human Resource Consulting.
By putting future pensions higher up the priority list and increases for pensions in payment to the back of the queue, at least everyone is more likely to get something after a wind-up.
A typical example of the impact of the changes for a scheme able to meet 70% of its liabilities would involve pensioners receiving 100% pensions, but no future increases, and non-pensioners receiving 75% of pensions and no future increases.
Currently, pensioners receive 100% pensions and future increases, which means that non-pensioners are entitled to just 50% pensions.
After the PPF is introduced in 2005, pensioners will receive 100% pensions with partial increases and non-pensioners 90% pensions with partial increases, subject to certain restrictions.
The government's original plan was to introduce more complex formulae based on service and age, however these proposals were dropped over concerns of the costs and complexity such formulae would have introduced.
There's an element of rough justice in the new formula, but it's simple to implement and easily understood, which has to be good news, said Keogh.
This week's edition of Professional Pensions is out now.
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