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Compensation hike avoided as DSS tarries on rebasing MFR

IFAs are to be spared increases in compensation bills for pension misselling because the Department of Social Security has taken too long making a decision on changing the minimum funding requirement.

In February, the Faculty and Institute of Actuaries told the DSS that pension fund returns would fall by about 0.35 per cent following the Government&#39s decision to scrap tax credits on dividends.

The DSS was reviewing whether this drop should lead to a change in the MFR.

The MFR is intended to guarantee that a pension scheme&#39s assets cover its liabilities. It is a requirement of the Pensions Act 1995 following the Maxwell scandal.

Actuaries expected the drop in returns to reduce the MFR by between 5 and 10 per cent. This would boost transfer values and redress by the same amount.

But the DSS has taken so long to review actuaries&#39 recommendations that it has been overtaken by major changes in the way that companies distribute money to shareholders.

The Faculty and Institute believes these changes mean that the entire MFR calculation needs to be revamped.

It is in discussions with the DSS to try to draw up plans for a new MFR basis.

Deputy chairman of the pensions committee Mike Pomery says: "It is nearly a year since the Budget changes and there have been changes in the way UK companies distribute money. Dividends are no longer the most popular way.

"The MFR is dividend-based and we need to look at it in a fresh way. Clearly, it is a dynamic and ongoing process."

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