UK – Once employers contribute a reasonable sum into a final salary pension scheme, there should be no obligations to fund their schemes further, says London-based actuarial consultancy Wolansky & Co, responding to the UK government’s green paper pension proposals.

The success or failure of government pension initiatives will depend on how successfully it addresses the key issue in final salary schemes of member security. “Proper funding and disclosure” should be the key focus of the government’s approach, says the actuarial firm.

There needs to be greater emphasis on closing the massive gap which currently exists between members’ expectations and their legal rights. “Members of final salary schemes generally believe that their pension rights are fully protected. However, the reality is that employers can terminate their pension scheme at any time and the members’ rights are dependent on the amount of money in the fund at the time.”

To provide 100% protection to members is not affordable by employers, so the government needs to set out how secure final salary benefits are to be, says Wolanski. It must also make sure that that “the reality of the situation” is fully explained to members.

The firm believes the focus should be getting “ a reasonable amount of money into the pension fund in the first instance”, which should be done under tight professional guidelines imposed on the scheme actuary in relation to the scheme specific funding standard. “This should be the end of the employer’s legal obligation to fund the pensions scheme,” it says.

This would mean that there would be no further debt on the employer on scheme wind-up since “this would mean that the employer is guaranteeing every eventuality in relation to the pension fund, including factors, which are totally out of its control,” says Wolansky.

An integral part of this approach is to give the right to take transfer values to pensioners and members within a year of retirement. “This would allow pensioners to have an annuity purchased for them, based on the transfer value and not the pension in payment, instead of being forced to receive a pension from the scheme,” says the firm.

Commenting on the government’s proposals on security for members, the consultancy firm does not see the move from the minimum funding requirement to scheme-specific funding improving security of members’ benefits in the absence of a statutory funding standard.

The proposal to toughening-up the pensions debt on employers could improve security, but at “poetically enormous cost on employers”. To reapportion assets on winding up of schemes would mean shifting assets from pensioners to other members. “This is extremely problematic”. An insurance scheme to protect benefits was not a practical proposition, in Wolansky’s view.