THE FT claims it has seen a draft of the Pensions Bill - due out today - which indicates the government is going to run with a flat rate levy rather than a risk-based premium scale to fund the new pensions protection fund.
That would dash hopes of groups - such as the Confederation of British Industry - which have argued a flat rate would provide protection for less well-run companies at the expense of better run pension schemes.
However, according to the documentation from the Department for Work and Pensions the FT has seen, introducing a scale would "not be feasible from the outset".
A risk-based system could become reality, but the question will instead be handed over to the board overseeing the introduction of the Pension Protection Fund, while any transitional period to a risk-based system could run as long as five years, the paper adds.
The CBI’s view is matched by the Engineering Employers Federation, which says a flat rate will encourage poor employers with large pensions liabilities to go to the wall simply in order to take advantage of a fund being propped up by stronger businesses.
The Daily Telegraph says in its piece on the issue that the protection fund could cost twice as much as government estimates, citing research from Aon Consulting.
However, the underfunding level of up to £130bn alone is not the worst aspect of the proposals, which is that the fund is more likely to encourage final salary schemes to “close in droves”.
The mis-matched funding levels are the result of the government using FRS17 accounting principles rather than realising “the fund will need to secure benefits through insurance company policies, which are far more costly.”
The Pensions Commission, a think-tank, estimates the number of employees in final salary schemes could drop from 9.1 million today to less than 1.5 million by 2024, the Telegraph says.
RESEARCH BY Oliver Wyman & Co suggests European life insurers are still some 60bn euros short of the capital they need to meet minimum solvency requirements under new rules, the FT reports.
Solvency II, the new regime meant to apply as of 2007, has capital adequacy requirements three times higher than the current minimum, the research says.
Together with new international accounting standards the change is likely to hit those countries where insurers have higher equities exposure, including the UK, Germany, Switzerland and Sweden.
"Last year's bull market has reduced some of the aggregate shortfall but has not significantly altered the fact that a large part of the market is extremely undercapitalised," the report says.
The life market could polarise between those companies with sufficient capital, and those that account for most of the shortfall, it warns.
CHANCELLOR GORDON BROWN may have taken EU criticism of his spending plans to heart, the Times suggests today, after he pledged in a dinner speech to commit to a lower rate of spending growth in the next spending round.
A meeting of EU finance ministers saw Brown try to water down plans for increased EU spending, which drew the criticism that he was hardly well placed to comment on increased spending by others.
The commitment means the Comprehensive Spending Review due by this summer could be “the toughest since Labour took power in 1997,” The Times writes.
EUROPE’S ENRON, a.k.a., Parmalat - the Italian milk and foods maker - ensnared more people yesterday after investigators placed five major international banks under formal investigation for their role in the scandal.
The Scotsman reports Citygroup, Bank of America, Morgan Stanley, Deutsche Bank and UBS have become suspects in investigations into Parmalat’s phantom offshore accounts, which led to the closure of the company at the end of last year.
Some 10 people are already under arrest, including Parmalat’s founder, while another 28 are still under investigation.IFAonline
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected