The Pensions Regulator (TPR) needs a more preventative and flexible approach to protect the Pension Protection Fund (PPF), the Work and Pensions Committee (WPC) has been told.
Cardano made the recommendation in its response to the select committee's inquiry into regulation of defined benefit (DB) schemes. It said this would reduce the chance of the lifeboat fund being overwhelmed in the case of a recession.
The inquiry closed to responses on 23 September, and will hold evidence sessions next month.
The fiduciary manager also argued the technical provisions method of measuring liabilities was "overly optimistic, masking the true cost and creating a false sense of security".
It said schemes should use an ‘economic basis' - a risk-free rate - to measure liabilities, an approach it said would provide valuations similar to buyout valuations. This would lead to more realistic assessments of scheme funding situations, it argued.
In its response, Cardano said: "A fuzzy measure of the health of the pension fund contributed to poor risk management on behalf of trustees, which led to deteriorating funding positions, and that has been met broadly, by TPR simply relaxing the parameters, and tacitly accepting the new status quo."
The fund manager added technical provision valuations meant schemes were not being properly funded. Also, in the event of a recession, a large number of funds would be moved into the PPF, straining the lifeboat fund's resources.
This, in turn, would see surviving funds having to pay a higher levy when "funding levels and corporate sponsors will probably be struggling financially".
The recommendation comes after analysis by PwC revealed the stark differences between the methods used to assess liabilities. On 29 August, the accounting method showed a £490bn deficit across 6,000 UK DB schemes, while a funding basis showed £710bn, and the buyout basis said it was £1.54trn.
Additionally, the cost of running DB schemes in the FTSE 100 could double over the next three years, according to JLT Employee Benefits. The consultancy warned companies due to have a valuation this financial year are at risk of having to pay higher contributions.
In a separate response to the inquiry, the Association of Consulting Actuaries (ACA) reiterated its previous call for a statutory override allowing schemes to convert increases from the retail price index (RPI) to the consumer price index (CPI). Doing so would help treat intergenerational inequality, it argued.
The ACA also said "it is unlikely that scheme rules were ever intended to tie trustees to an index the National Statistician has described as flawed".
By raising benefits in-line with CPI, which usually increases slower than RPI, companies could raise salaries and increase contributions to defined contribution (DC) schemes for younger workers, the association argued.
In July, the Intergenerational Foundation claimed DB schemes were being funded by private companies 20 times more than their DC counterparts, with a gap as high as £40bn.
The ACA called for legislation to allow the conversion, stating the problem was created by the Pensions Act 1995, which introduced compulsory indexation.
Chairman Bob Scott said the option should be made available for companies struggling to pay DB obligations, or where they will commit to fund DC schemes at a higher rate.
"People who are in DB schemes have benefits that are much more valuable than the contributions being paid to their workmates in DC schemes," he said. "Easing requirements on companies to provide indexation to their pensions benefits would mean more money is freed up which may enable companies to make more generous contributions to their DC schemes.
"But, we don't think that should be just a windfall for profitable companies which would see their liabilities reduced. There should be a quid pro quo or it should be for struggling employers to ease things."
The ACA also said TPR's power to direct scheme funding outcomes was "a lengthy and expensive process for all involved, and is little used".
The association argued the watchdog was unable to be proactive enough and said it needed "easier access to its powers... [to] have more influence over outcomes".
TPR said it was inappropriate for it to comment on the submissions.
The WPC confirmed to PP around 75 responses to the inquiry had been received, and three evidence sessions are planned for 12, 17 and 19 October. A final session will then take place on 23 November with pensions minister Richard Harrington.
It also said it would be unlikely to publish a report before the new year.
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