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Actuary proposes new funding basis

Independent actuary Bacon & Woodrow is proposing changes to the minimum funding requirement for occupational pension schemes.

B&W is submitting the proposals as part of the DSS and Treasury consultation on revising the MFR. It hopes to address the imbalance between protecting for the short term and investing for the long term.

It says benefits should be able to be secured with investment-linked pensions rather than guaranteed pensions when a scheme finishes.

B&W says employers should stick to defined-benefit schemes where the employer takes the risk for the investor while the scheme is ongoing. But when the scheme winds up, the responsibility for the risk on investment-linked products should switch to the investor.

It says this would free schemes from investment constraints imposed by the present MFR. The new MFR would be targeted at the benefits from investment-linked pensions.

B&W also proposes that the solvency level on the new MFR basis should be disclosed to members, with an explanation of what this means if a scheme is wound up.

Head of benefits research Brian Wilson says: “The only way to square the circle of allowing schemes the freedom to invest in the assets most appropriate for long-term liabilities, while at the same time covering the short-term liability should the scheme wind up, is to amend the benefits.”


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