The UK government has published its proposals for the next stage of plans to replace the minimum funding requirement (MFR).
The proposals include the introduction of a long-term funding standard to suit individual schemes, with a strong regime of transparency, disclosure and enhanced security.
“Our proposals mean that there will be better protection to provide more effective security for members of defined benefit occupational pension schemes,” says social security minister, Alistair Darling.
The government also announced the inauguration of a consultation panel of representatives from the pensions industry, consumer organisations, employers and trade unions to take forward the final stages of the MFR reform.
The joint department of social security and treasury document, “The Minimum Funding Requirement: The Next Stage of Reform”, says it is seeking industry views on the workability of draft regulation to introduce changes to the MFR under the terms of the first stage of reform.
This includes extending the period in which scheme funding must be made good, thus allowing more sustainable long-term protection for scheme members.
Another suggestion is the removal of the requirement for annual re-certification for schemes that are fully funded on an MFR basis – allowing resources and effort to be directed elsewhere.
Stricter winding up conditions for pension funds are also put forward with the onus on improving member protection.
Says Ruth Kelly, economic secretary to the treasury: “Defined benefit schemes are essential to the future security of some 13m people. Reform of the MFR is vital to the future success of these pension schemes. I am pleased we are able to take the next steps in the reform of the MFR, improving security for scheme members.”
Consultant William M Mercer gave an initial guarded welcome to the proposals. European partner Andy Green, says: “The extension of the deficit correction periods will give employers relief from some of the unintended adverse consequences of the way the MFR operates. With the existing test, and the current volatile conditions of markets, we have a situation where employers can end up with a heavy financial burden simply as a result of the choice of valuation date even if they have no intention of winding up their pension scheme.”
He adds that the abolition of annual re-certification is a welcome, if minor, reduction in bureaucracy for adequately-funded schemes.