| Triggers are not target - The Pensions Regulator clarifies its stance |
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| 14/05/2006 | |
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Pension funds should not consider the "triggers" of the Pensions Regulator as objectives to be met. The UK pension watchdog, which was set up to defuse in advance pension funding issues in advance, said in its latest release that these triggers are primarily a mechanism to help prioritise its own workload, and that they should not be seen as targets for pension schemes. "Our triggers provide an indication of the situations in which we may look at a scheme - but they are not targets", said David Norgrove, chairman of the Pensions Regulator. "We will be flexible in our approach, recognising that schemes with strong employers pose less risk, but that in most cases the best protection of members' benefits is an ongoing employer. We will take a risk-based approach, allocating regulatory resource in order to focus on those schemes that pose the most serious risk to members." "This is a welcome change of tone, but I suspect that these triggers will nonetheless be used to set minimum funding standards for many schemes", commented Clive Fortes, head of the actuarial practice at Hymans Robertson. The Pensions Regulator's statement, which follows a 12-week consultation launched in October 2005, retained two triggers instead of three. These triggers will be used by the pension watch dog to identify schemes that are most likely to meet difficulties in paying benefits to pensioners due to their incapacity to close their deficits within ten years. The first trigger is the capacity to reach a 100% funding for benefits protected by the Pension Protection Fund within 10 years and the second is a viable plan that will lead to a 100% funding of all benefits on an FRS17 basis within 10 years. According to Hewitt Associates, the human resources services company, the Pensions Regulator dropped a third trigger relating to buy-out benefits. It said that this trigger "had become increasingly unrealistic due to the lack of market capacity to price liabilities in this fashion." The Pensions Regulator said: "Particular concern was expressed over the practicality or desirability of using a percentage of a scheme's solvency measure in setting the technical provisions trigger. In response to comments made, the Pensions Regulator has modified its approach. Rather than looking at a range in relation to buyouts representing average values for section 179 and FRS17 liabilities, the regulator will concentrate on the values themselves in applying technical provisions triggers to individual schemes." J.L. |
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