NAPF officials have welcomed changes announced today by the Department for Work and Pensions concern...
NAPF officials have welcomed changes announced today by the Department for Work and Pensions concerning the Minimum Funding Requirement on occupational pension plans as they reduce pressure on schemes to correct funding problems.
NAPF Benefits Director, David Astley, says steps taken by the government were a move towards a more practical funding regime for hard-pressed company pension schemes.
"There are significant pressures on providers of defined benefit pension schemes, which have come sharply into focus during recent weeks. By extending the time limits for schemes to make good underfunding, and removing the requirement for annual recertification, these regulations will bring schemes some much needed relief from the burden of red tape."
Ian McCartney, pensions minister, said further work was still being conducted with industry and consumer bodies to replace the MFR, but changes being introduced should reduce the volatility under which schemes were being placed.
Four key changes have been made to MFR in the short-term.
In particular, schemes now have until April 5, 2005 rather than 2003 to bring funding on underfunded pension schemes up to 90% of the MFR level, and the second requirement to close the gap completely and ensure pensions schemes are 100% fully funded by April 5, 2007 has also been extended until 2012.
Industry experts have been arguing for a time extension as filling the funding gap in such a short space of time would have created severe volatility within pension funds because they would still be adopting a short-term rather than long-term investment strategy.
A second change also means that schemes which are fully funded will no longer be required to recertify the schemes as meeting the 100% MFR, however, schemes which have a defecit will still be required to go through annual security checks.
Members of pension schemes are also being offered heightened protection against the loss of all penion provision as stricter conditions are being introduced on employers who decide to wind a scheme up voluntarily.
The actual costs of winding-up a scheme, as well as the actual costs of annuities for pensioner members, and cash equivalent transfer values on an MFR basis for non-pensioner members must all be calculated and declared by employers should they choose to wind up a scheme.
And dividend yields in the Market Value Adjustment are also being lowered from 3.25% to 3%, in line with recommendations by the Faculty & Institute of Actuaries to reflect the overall impact of lower dividend payments by companies to shareholders, and of increasing life expectancy.
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