UK – The deficit correction periods UK pension schemes must adhere to order to meet the minimum funding requirement (MFR) will be extended, according to the pensions minister Ian McCartney who says it will help solve short-term investment volatility problems and allow pension funds to invest with a longer-term perspective.
The latest changes to the MFR also includes the removal of the requirement for annual re-certifications for schemes that are fully-funded on an MFR basis. This will leave them free to concentrate their efforts and resources elsewhere. However, security checks will remain in place for schemes that are under-funded.
Furthermore, the government also proposes stricter conditions governing the winding down of schemes, which is designed to protect pension scheme members. Says Ruth Kelly, secretary to the treasury: “reform of MFR is vital to the future success of defined benefit pension schemes. We are moving to a system that provides more effective security for scheme members.”
Mike Arnold, chairman of the Association of Consulting Actuaries (ACA) says that he welcomes the changes as they represent the first good news for DB schemes for a while. “Hopefully, these changes are indicative of a positive approach by the government in support of DB schemes,’ he says.
Paul Greenwood, head of retirement research at William M. Mercer says that the changes will be welcomed by employers, but not all scheme members will view them as favourably. “Effectively, they the_changes give employers greater flexibility to correct any deficits at a time when many have experienced poor investment returns but transfer values for early leavers will have a lower guarantee and may be reduced.”
Aon Consulting believes that while the changes will provide relief for employers having difficulty meeting the MFR in the current economic climate, they do little to ease the long-term cost of a scheme.
Says head of research Simon Martin: “the removal of the annual re-certification requirement is welcome. However, we have seen the economic conditions in the last few years result in a deterioration in the MFR funding level for most schemes. If anything, trustees should increase their vigilance of the funding level to ensure that they do not allow it to deteriorate too much in future."