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Pension costs push UK financial regulator into the red

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The UK’s financial regulator made a loss of £8.6m (€9.9m) in the 12 months to 31 March due to a £65.3m actuarial loss recorded by its pension fund.

The Financial Conduct Authority’s (FCA) defined benefit pension scheme – which closed to future accrual in 2010 – cut its discount rate from 3.45% to 2.45% during the 2016-17 financial year, its annual report and accounts showed.

The discount rate cut meant liabilities rose to £886.6m, an increase of 22% year-on-year. Total assets reached £712.5m, leaving a shortfall of £174.1m. 

The actuarial loss, recorded on the FCA’s balance sheet, meant that a £56.7m surplus – which included an increase in fees collected from regulated firms – became an £8.6m loss.

Following a full actuarial valuation carried out last year, the FCA agreed a recovery plan with the pension scheme’s trustees. This involves annual payments of £29m for 10 years, which began on 1 April 2017. The Financial Ombudsman Service, which also contributes to the scheme, will pay a further £1m a year.

The FCA added in the report and accounts: “In order to mitigate the risks of significantly increased future annual pension deficit funding contributions, the FCA has agreed with the trustee a set of triggers whereby the level of exposure to equity securities will be reduced in favour of debt securities (ie corporate bonds and index-linked gilts). These triggers have been determined to identify material improvements in the plan’s funding position, measured relative to its long-term funding target.”

The UK regulator is funded chiefly by fees paid by regulated financial firms, and receives no government funding.

Elsewhere in its report and accounts, the FCA said it had spent £6.1m on work related to the European Union’s Markets in Financial Instruments Directive (MiFID) in the 2016-17 period. 

The regulator last week published a wide-ranging asset management market study, recommending a range of measures affecting asset managers and investment consultants.

 

 

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