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Ailing MFR is driving down transfer values

The minimum funding requirement is now so weak that young scheme members&#39 transfers are only worth 15 per cent of the cost of buying the benefit with a life company, according to leading actuaries.

Assumptions for price inflation, longevity and gilt and equity returns have changed so much since the MFR was introduced that minimum transfer valuations have shrunk in real terms, according to data published in The Actuary, the professional body&#39s publication.

But Scottish Equitable pensions development director Stewart Ritchie says it is uncertain whether the scheme-specific regime which is due to replace MFR will be more or less generous to transferees.

Under the scheme-specific approach, each scheme&#39s actuary will be able to tailor a minimum funding requirement based on the maturity of the scheme.

The scheme-specific replacement of MFR is under discussion in the Department for Work and Pensions Green Paper and it is expec- ted to take effect from 2005.

Ritchie cautions that the poor finances of many final-salary schemes means the Government may be reluctant to impose a new regime with requirements that weaken funds further, which could push transfer values even lower.

Ritchie says: “The minimum funding requirement is not an appropriate yardstick for transfer values and, in future, valuations could be higher but may be lower. It is a case of greed versus fear – the fear is you might end up with even less if you wait.”

The Actuarial Profession pension board deputy chairman Wendy Beaver says: “Under the new scheme-specific regime, there will not be a statutory minimum as such – trustees will decide valuations based on actuarial advice.”

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