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Actuaries slam UK’s pension protection fund

UK – The chairman of the Association of Consulting Actuaries has slammed the government’s plan to introduce a pensions protection fund, saying it will mark an end to final salary schemes.

Speaking at the ACA’s annual dinner last Friday, Gordon Pollock attacked the Government’s pensions proposals announced in June, highlighting the Pensions Protection Fund as a disincentive for employers to provide defined benefit schemes.

“Whilst they (the reform proposals) may deliver greater protection for a limited number of existing pension schemes, they are likely to turn an increasing number of employers away from their present occupational arrangements,” he said.

Pollock foresees that employer contributions will fall as a result of the reforms, and that fewer new employers will offer any pension arrangements at all apart form stakeholder schemes.

“The government will probably take no notice at all about what I and many other pension professionals and sponsoring employers say about the failings in its latest policy measures,” blasted Pollock. He predicted that “future pensioners and taxpayers will rue this ‘short-term’ approach to pensions”.

The controversial PPF has been criticised by members of the pensions community due to the added costs for employers. Inspired by the US Pension Benefit Guarantee Corp. it is proposed that all defined-benefit schemes pay a premium to a pensions protection insurance fund, the size of which will vary according to funding status. The PPF will then pay-out in the event of insolvency.

The concern is that employers with well-funded pensions schemes will be forced to subsidise companies with less well-funded schemes. This premium structure may also encourage some schemes to increase risk – knowing that there is a fallback.

The PBGC has already recognised this fact and UBS analyst, Stephen Cooper, believes it is possible that the PBGC will switch to a more sophisticated risk-based premium determination system that considers the size and financial health of the company sponsoring the scheme and the volatility of the assets. Such a structure has not yet been mentioned by the UK government.

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