The Department for Work and Pensions has published a call for evidence by the Chancellor on the impact of funding defined benefit (DB) pensions on investment and growth.
The first part of the call asks whether companies undergoing valuations of their DB pension deficits should be allowed to smooth the calculation of their asset and liabilities.
The second part asks whether the Pensions Regulator (TPR) should be given a new statutory objective to consider the long-term affordability of deficit recovery plans to sponsoring employers.
"We need to know whether the current regulatory framework is sufficiently flexible for employers with defined benefit pensions or whether there is more we could reasonably do," said Steve Webb, minister for pensions.
The department noted that employers and pension groups have voiced concern that historically low gilt yields has affected the discounting applied in the calculation of long-term pension liabilities, and rising deficits are said to be forcing employers to pay higher contribution.
"While it is good that the Government has recognised the damaging impacts of quantitative easing and the low interest rate environment on pension funds, we are worried that this is all too little, too late," said the National Association of Pension Funds (NAPF) policy director Darren Philp.
He continued: "Pension schemes that have been going through their valuations over the past 12 months need the most help as they will be most affected by record low returns on gilts. We are worried that these proposals would sideline this issue and do nothing to help these schemes."
Philp argued that the smooth approach risks making the situation worse once interest rates start picking up, and could cause confusion for trustees, actuaries and employers when agreeing a discount rate.
"We need something that schemes can benefit fro quickly, which is why we think the best way forward is reassurance from the Regulator that a simple and transparent adjustment can be made to the discount rates being used by schemes now," said Philp.
He added: "We welcome the Government consulting on a new objective for the Regulator. We have long argued that the Regulator needs to take into account the longer term sustainability of workplace pensions."
The call for evidence on the new objective closes on 21 February 2013, and the call for evidence regarding smoothing closes on 7 March 2013.
First published 28.01.2012
monique_simpson@wilmington.co.uk
