UK - Consultants have dubbed government proposals that schemes can pay for increased member protection costs through a return to equities as "farcical" and "actuarial mumbo jumbo".
The government is setting up a central insurance fund – called the Pension Protection Fund – in order to protect the pensions of members whose schemes are in wind-up.
It has also outlined plans to ensure that when solvent employers wind-up their schemes, they meet their full buyout costs.
But the department for work and pensions has moved to reassure schemes that any increased costs incurred by the fund would be offset by the abolition of the minimum funding requirement and schemes’ increased allocation to equities.
In its action plan, the government states the MFR is responsible for the increased demand for gilts, and claims that once it is gone, that trend will be reversed.
And it claims that if schemes move £5bn of their assets back into equities it will produce a 2% extra return over gilts, or cost savings of £100m – what the DWP calls a “deliberately modest” estimate.
PricewaterhouseCoopers partner Peter Tompkins ridiculed the department for work and pensions’ cost analysis and described it as “hilarious”. He said: “This is absolutely farcical. With the abolition of the MFR, the DWP expects funds to move not into bonds, but into equities?
“The government says that if they do that, then schemes will get 2% more returns and abracadabra, they’ll make £100m more. I have no idea who put that together, but if the government thinks that schemes will put £5bn into equities, then I have no idea what planet it is living on.”
Hewitt Bacon & Woodrow partner Kevin Wesbroom said: “This is the sort of actuarial mumbo jumbo that has been discredited in the actuarial profession. We’re not saying that equities don’t produce better returns, but it doesn’t come for free. This is a class case of shooting yourself in the foot.”
Independent consultant John Ralfe agreed and said: “The insurance fund and premiums is all about reducing risk. So how are they going to increase protection by increasing the risk?”
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