The EU's new Pensions Directive introduced last week will increase pension scheme transparency, acco...
The EU's new Pensions Directive introduced last week will increase pension scheme transparency, according to Mercer Human Resource Consulting.
It says that adopting the new rules could result in companies having to tell their members how much of their "promised" benefit they would receive if the scheme was wound up.
The Directive requires all member states to examine their pensions legislation. In the UK, this will mainly affect the interpretation of information on security of benefits.
As a result, pension scheme members will have the right to receive information about the present amount of their accrued individual entitlements.
Additionally, the statement of benefit security will probably be interpreted on the basis of a scheme being wound up, Mercer says.
Most UK company pension schemes would be less than fully funded if they were to wind up today as a direct consequence of poorly performing equities and low interest rates, Mercer adds.
In certain circumstances just half the liabilities would be covered.
"Most employers assume their pension scheme will be ongoing, and so they set long-term investment strategies," says Mark Sullivan, european partner at Mercer.
"If the scheme is prematurely wound up, the ratio of assets to liabilities will be a very volatile figure and much lower than planned."
At the moment, funds are required to meet pensioners' entitlements first, leaving contributing and deferred members to share the leftovers.
"At issue here is the mismatch between pension scheme promises and funding levels on a wind-up basis. Companies will need to invest in educating their members to help them interpret the figures and appreciate the risks," Sullivan adds.
The exact impact of these new changes is yet to be clear, however most of the requirements set out by the Directive are already met by UK pension legislation.
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