Measuring tools are making it difficult for smaller schemes to comply with FRS17 rules
Smaller pension schemes are finding it harder than ever to comply with minimum funding requirement (MFR) regulations, according to Jardine Thompson's latest annual survey.
Measuring the MFR under the Inland Revenue's FRS 17 rules is causing unforeseen pressures because of lower interest rates and longer life spans, said Tim Evans, chief actuarial officer at Jardine.
The survey found that the majority of schemes did not have to change their relationship with their investment managers because of the introduction of Myners' recommendations.
Evans said most pension schemes would continue to integrate investment and actuarial strategy rather than separating them, as Myners suggested.
The survey indicated that the rate of change from defined benefits to defined contributions is slowing down.
It also found that 83% of funds that believed FRS 17 had relevance to pension planning thought the impact would be negative.
Despite the mixed responses to the survey, Evans said FRS 17 would have implications for the direct investment positions and strategy of pension schemes.
He claimed this was due to a widespread mismatching of schemes' asset strategies, compared with the investment basis applied for FRS17.
He said: 'It is not surprising that of those who indicate FRS 17 will impact on them, 54% think they will need to rethink their investment strategy and 35% their scheme design.'
Evans also argued that FRS 17 will lead to contention between scheme trustees and sponsoring employers because of the increased onus that will bear on the latter. He said: 'We are therefore likely to see sponsoring employers becoming much more interested in the trustees' investment strategy.'
The number of schemes reporting that the Myners recommendations will increase costs varies according to the size of the scheme, the survey found. Some 40% of those with less than 1,000 members thought it would increase costs, while only 14% of schemes with more than 5,000 believed this likely.
According to the survey, trustees' attitude to stakeholder have become less hostile since last year. Evans said: 'In our 2000 survey, 43% of respondents felt stakeholder would have a negative impact on their scheme.
'This year, the number has fallen to 11%. The majority, 67%, instead feel stakeholder has no impact on them.'
He added that most occupational schemes adapted their existing schemes to meet the employee access requirements. The survey showed that the attitude of schemes goes against the Myners report in some areas. It found that 86% believe trustees already have the information needed to make investment decisions, contradicting the Myners report which said they need to be much better educated.
1 42% actively manage their scheme investments. For small schemes this is 56%.
2 55% use a combination of active and passive management. For large schemes this is 71%.
3 80% have undertaken an asset/liability study. In 2000, this figure was 72%. For small schemes this is 76%.
4 98% have agreed performance benchmarks in place with the investment manager(s).
5 62% have reviewed investment manager(s) in the last 12 months. This was 56% in 2000.
6 50% of large schemes reviewed investment managers last year. Of these, 75% made changes.
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