Pensions regulator Opra has affirmed that occupational schemes must still comply with existing minim...
Pensions regulator Opra has affirmed that occupational schemes must still comply with existing minimum funding requirements (MFR) despite declines in world markets.
Declines since September had led to speculation that the regulator may suspend MFR for final salary schemes, however, Opra does not have the power to do so.
Schemes have until April 2003 to get 90% funding on the MFR basis and until April 2007 to get 100% funding. The regulations allow sponsoring employers to apply to Opra for an extension to the normal time allowed for making up a MFR shortfall. Still, the regulator can only grant an extension for a specific scheme and the extension must be based on circumstances that relate to that scheme.
Before granting an application, Opra has to satisfied that the scheme complies with strictly defined conditions set out in the regulations. Since 1997, the pensions authority has had 15 applications, only three of which have been considered by the board and only one has been successful.
Some of the grounds under which an extension may be granted include proving that underperformance of certain assets compared to the MFR indices, loss through fraud or an increase in liabilities not under the employer's control.
If the authority receives a large number of applications due to the falls in global markets over recent months, Opra may consider exercising an additional power it has under current regulations. This enables Opra to grant extensions to the relevant funding correction periods under the MFR which are not specifically tailored to an individual scheme's circumstances.
The authority has said it may also decide to grant extensions without insisting on all the documents, information and evidence which would normally be required.
Still, while monitoring the present situation, Opra has not yet considered it necessary to apply the additional powers regarding extensions.
Harriet Maunsell, chairman of Opra, said: 'These applications are complex and involve difficult decisions for the board. The individual circumstances of a case are considered very carefully. We may be presented with a case where payment of the required level of contributions could seriously damage the business. But we have to balance that against our assessment whether such an employer, already in financial difficulty, is likely to continue in business.'
The Government is currently examining replacement options to the MFR, as put forth in the Myners report. The MFR is to be replaced with a new regime based on long term scheme specific funding standard based on transparency and disclosure.
Interim changes are being consulted on and are not expected until April 2002. Among the measures are extensions to time periods for correcting funding deficits giving schemes three years to get to 90% funded and 10 years to get 100% funded.
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