Sunday, November 04, 2012

Pension Regulator or Pension Terminator?

“Is trying to protect the Pension Protection Fund destroying DB?”

The Pension Protection Fund was broadly welcomed, especially by Trustees, who thought they could now sleep easier over the prospect of things all going horribly wrong. The question now being raised by many trustees is whether the “tail is wagging the dog”? Is the Regulator being too aggressive and inflexible with regard to liability calculation and deficit repayment because he has to safeguard the PPF at all costs - even if it is at the expense of remaining Defined Benefit schemes?

Nearly everyone accepts that current market conditions with regard to equities returns and gilt yields are completely and utterly abnormal. Government policy on Quantitative Easing is arguably making things worse. This all means that many (not all) deficits are exaggerated and don’t reflect a true or fair picture. Yet, the Regulator is insisting that schemes make repayment and investment decisions as if they were real? This seems wrong. The Pension Minster himself, Steve Webb, is on record recently that the “Mark to Market” accounting standard is a nightmare which is killing perfectly good schemes. He has promised not to idly stand by and do something.

It is an “objective” of the Pension regulator to reduce risk to the PPF and to protect to protect the benefits of pension scheme members. However, if the regulator doesn’t support “smoothing” or some other way of supporting schemes through this current nonsensical period then there is the danger that good schemes could close or fail. The failures would then have to be taken up by the PPF. The AMNT would support the NAPF proposal that it made under the Red Tape Challenge to give the Regulator an additional statutory objective to defend the longevity and health of pensions schemes.

I think that everyone realises that the Regulator is in a difficult position but many trustees are in an even harder place. They believe that they are being forced unnecessarily to close viable and affordable schemes. The PPF should be a pension saviour not destroyer.

(this article was publised in Pensionage last month)
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