The UK’s National Association of Pension Funds (NAPF) has called for the immediate suspension of the minimum funding requirement (MFR). It wants a new financial protection system put in place for members of pension schemes.
The association in its response to the Department of Social Security's consultation paper ‘Security for occupational pensions’, says plan sponsors would be expected to fund their schemes to meet a ‘long-term standard’, so that any under-funding revealed at the required triennial valuation would trigger a plan to bring the scheme back to 100% funding, normally by the next valuation. The long-term standard would be determined by the actuarial profession.
When an employer with an under-funded scheme goes into liquidation, the NAPF recommends that the scheme be continued as a closed scheme if possible; members wanting to use their share of the assets to obtain guaranteed benefits should be able to do so, or otherwise have these assets transferred to a defined contribution (DC) basis, or to a non-guaranteed discontinuance fund.
In addition to greater disclosure to members and to the pensions regulators about under funding at the triennial valuation, the association wants to see actuaries subject to a duty of care to scheme members.
In the submission, the NAPF says the MFR is causing "potential long-term damage to pension provision." Chairman Alan Pickering says it is having the opposite effect to that intended. "Instead of protecting the benefits of the relatively few members of schemes where the employer becomes insolvent, it is undermining the retirement provision of many members of defined benefit (DB) schemes that are adequately funded on an ongoing basis." He concludes: "To prevent any further damage to DB schemes we recommend the immediate suspension of the MFR."
However, the NAPF says that parts of the MFR regime should continue to apply until revised arrangements are in place.