The UK’s Treasury and Department of Social Security have received a mixed reception to the publication of their consultation document on the minimum funding requirement (MFR). A report by the Faculty and Institute of Actuaries, sponsored by the DSS and released on the same day, urges the government to make interim changes including longer life expectancy assumptions, more realistic allowances for pensions increases and a change to valuing equity-based liabilities.
Alistair Darling, the UK social security secretary, wants both the actuaries proposals and those of Paul Myners, currently reviewing the institutional investment industry for Chancellor Gordon Brown, to enter the debate. “The FIA report raises a number of questions about the MFR itself and its ability to protect pensioners and other scheme members. It is therefore sensible to explore whether there is a more effective or reliable way of protecting scheme members’ rights,” he says. Responses to the consultation paper must be returned by 31 January 2001.
MFR was introduced in 1997 to provide security for pension fund members in the event of the employer becoming insolvent and unable to pay into the scheme. Critics says MFR has distorted the gilt market by forcibly inflating demand and depressing yields.
One of its greatest critics has been the UK’s National Association of Pension Funds, which has praised the government’s consultation paper. Says chairman Alan Pickering: “It is brave of the government to embark on such a sensitive consultation exercise in a pre-election period. It is imperative that the reform of the MFR does not become a party political issue.”
PricewaterhouseCoopers is positive about the move. “It is good news that the Treasury has forced the Department of Social Security to widen the scope of the MFR review and possibly abandon the MFR. If this means tearing up five years of work, so be it,” says John Shuttleworth, a senior actuarial partner.
Others are more critical. Consultant Watson Wyatt welcomes the documents but believes the interim proposals are incomplete and potentially damaging. “Given that there will be a full review in about two years it seems unhelpful to implement these measures at this stage as they would result in a considerable administrative burden for pension schemes,” says Colin Singer, a Watson Wyatt partner.
Penny Webster, a partner at consultant Bacon & Woodrow, is encouraged by the actuaries suggestions but critical of the consultation document. “I hope the government has the courage to implement the recommendations and sooner rather than later, The signs are not good though. The government’s consultation paper avoids taking any particular line and instead seeks to widen the debate to cover measures such as insurance and a central discontinuance fund. It needs to focus on a definite solution to the problems MFR is causing UK pension funds,” she says.

Topics