UK – The UK government must be cautious of the unintended consequences of introducing smoothing at a time when it wants to boost GDP growth, Towers Watson has warned.
Discussing the Department for Work & Pension's consultation to introduce smoothing of discount rates – criticised as being "too little, too late" by the National Association of Pension Funds (NAPF) – the consultancy once again voiced concerns that it could result in pension funds being "punished for the past" and cautioned employers against supporting the measure.
Graham McLean, senior consultant at Towers Watson, said: "It's also hard to see how any calculation prescribed from on high could take account of the very different circumstances that schemes find themselves in – for example, when it comes to the strength of the sponsoring employer or the amount of prudence built into other assumptions."
He added that the consultation announcement came at a time when GDP growth figures – on Friday showing the UK suffered a 0.3% decline in the last quarter of the year – would serve to remind the government it needed to "remove [the] brakes of economic growth".
"Hopefully, that will not lead to pension changes with serious unintended consequences," McLean said.
Mike Smedley, pensions partner at KPMG, shared the concerns, saying the consultation was "disappointingly light on details".
"Pensions funding is clearly long term and should avoid excessive focus on short-term market conditions – and many feel tat the Pensions Regulator is too dogmatic here," he said. "On the other hand, a formulaic smoothing approach could create as many problems as it solves."
However, Smedley welcomed the proposals to add a further statutory objective to the five currently guiding the Pensions Regulator (TPR), forcing it to take account of the affordability of any new funding proposals.
"Whilst in theory the regulator already reflects employers' views," he said, "this change would be a positive move in ensuring the regulator is obliged by statute to take a balanced view."
Employer lobby group CBI, which first called for TPR's objectives to be amended last summer, was positive about both proposals.
The group's director of employment and skills Neil Carberry said the best form of protection for members was a "thriving, solvent employer".
"Giving the Pensions Regulator a statutory objective to promote growth and allowing for short-term market fluctuations in scheme pricing will ensure employer affordability is at the heart of its regulatory strategy," he said.
The regulator had initially rejected calls to amend its objectives, arguing that the current regulatory regime offered significant flexibility and balanced the needs of schemes, business and the Pension Protection Fund.
Carberry was also positive about the proposals to allow for smoothing, saying it was important for regulation to take into account the long-term nature of pension funds.
"Injecting economics into what up until now has been a purely actuarial debate will increase business confidence, allowing more investment in growth and jobs," he said.