UK - The government should scrap a requirement on defined benefit pension funds to value liabilities based on fixed income bonds as it would encourage more employers to open new final salary schemes, a Conservative Party policy team has argued.

Details of a lengthy report presented to the Shadow Cabinet on Friday by the Economic Competitiveness Policy Group (ECPG) - entitled Freeing Britain to compete: equipping the UK for globalisation - suggest several changes are needed to pensions regulation to reduce the pressure on employers and encourage them to maintain and perhaps open new defined benefit funds.

More specifically, the group chaired by John Redwood MP and Simon Wolfson, chief executive  of high street chain Next, recommend the discount rate applied when valuing a pension fund's assets and liabilities should not necessarily be based on bond rates, because values are distorted when bonds look expensive, but should be allowed to apply "fund-specific discount rates which reflect the asset and liability pattern of the fund".

"These changes would shift employer perception of risk in a way which might encourage more to keep their current funds open, and some to set up new funds," said the report.

"It would also relieve the immediate pressure to put so much cash flow into pension fund investment, based on present low bond yields and deep regulatory pessimism about future returns," continued the report's authors.

Focus on pensions was just one part of the report which looked at all aspects of business, economics and regulatory requirements, but five key proposals were submitted on occupational schemes which the group claimed would ease the risk on employees - particularly those among defined contribution schemes.

The remaining four proposals are there should be no compulsion to buy an annuity with  pension fund assets on retirement, along with the removal of a maximum age at which a pension can be drawn down.

At the same time, the ECPG said more must be done to persuade the Accounting Standards Board changes are need to accounting rules as FRS17 and IAS19 have introduced too much volatility into company balance sheets.

The Shadow Cabinet has not yet said it would adopt such policy proposals as its own.

But launch of the ECPG report came in what is rumoured to be preparation for a UK general election in October. UK financial industry sources say there has been increased political activity behind the scenes in recent weeks despite Parliament being on summer recess, suggesting prime minister Brown is preparing to call a snap national vote.