The planned removal of the 15-year recovery plan end date for defined benefit (DB) schemes run by energy network operators has been welcomed.
The proposal was set out in Ofgem's second consultation on the funding of the sector's pension deficits which came on the back of discussions with the Pensions Regulator (TPR).
There had been concern the arbitrary time limit on funding deficit payments could have forced operators to raise energy prices at the end of the period to plug their deficits.
Given the economic environment where gilt yields are still low and deficits high, the energy regulator concluded the existing fixed 15 year period was not sustainable.
Ofgem also said energy network operators should explain to trustees how protections in licence conditions and its funding commitment could provide strong employer covenants.
Mercer welcomed the proposed removal of the 15-year end date for allowing more flexibility over cash deficit payments. It will also allow operators, trustees and consumers to discuss scheme specific long-term plans as well as the sustainability of schemes across the sector.
Mercer principal for utilities group Simon Turner said: "In the current low gilt yield environment, we expect many deficit recovery plans will need to be extended beyond the original 15-year period.
"Ofgem's suggestion to remove the fixed end date for funding historic pension deficits is both pragmatic and sensible and it is encouraging to see TPR's comments that its objectives can be compatible with this.
"Energy network operators now need to demonstrate they are considering both current and future generations of consumers when agreeing the level of cash contributions being paid into the pension arrangements with the trustees.
"Ofgem recognises the key role of trustees in managing the pension scheme and has engaged with TPR on this issue to ensure the objectives of both organisations can be compatible," he added.
The consulting firm said energy operators should carry out strategic reviews of their pension arrangements to assess the opportunities and risks arising from the consultation which closed on 27 April.
Also, those heading into deficit contribution negotiations with trustees for 2016 valuations should have a "clear understanding of their starting point". Assessment of all benefit change and liability management options was also advised before Ofgem's next review of pension costs.
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