BROADSTONE claims new funding guidance “shoots son of MFR in the leg”

12/06/2014

This week the Pensions Regulator issued its new Code of Practice on funding defined benefit pension schemes.

Commenting on the new code, John Broome Saunders, Actuarial Director at BROADSTONE said,

“As expected, there is a lot of focus on integrated funding, investment and covenant risk management – indeed, the word ‘risk’ occurs 142 times in the 50 page code. However, one policy that the Regulator appears to have shied away from is its proposed creation of a prescriptive funding formula that it would have used to regulate funding. Like many in the pension industry, we were concerned that the formula would create an implicit statutory funding requirement – not dissimilar to the old and discredited Minimum Funding Requirement (MFR). Whilst the Regulator hasn’t completely given up on the idea, it has stated it wants to consider the matter further – effectively, this potential son of MFR has been shot in the leg, and may not make a full recovery.”

Broome Saunders believes that the new code is probably good news for scheme sponsors.

“The old guidance made it clear that deficits should be paid off as quickly as possible. The Regulator now seems to have relaxed a little, and deficits merely have to be paid off over an ‘appropriate’ period, which would appear to be a green light to generally longer recovery periods, which could lead to lower contributions.”

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