View more on these topics

Friends warns on massive gap between MFR and FRS17

Friends Provident is warning that more firms may switch from defined-benefit to definedcontribution pensions because of a yawning gap between the minimum funding requirement and FRS17.

Its calculations reveal even pension schemes which are overfunded under minimum funding requirements appear to face huge shortfalls under accounting standard FRS17.

The figures show that a scheme can be 115 per cent funded on an MFR basis yet only 65 per cent funded through a FRS17 valuation.

The dramatic difference is because of the way scheme liabilities are calculated. Friends says this means companies which thought their pension scheme was overfunded could be in for a shock when FRS17 valuations are calculated.

MFR liabilities are calculated by assuming a return on equities and gilts and a market value adjuster is applied to account for actual investment conditions at the time.

FRS17 liabilities are calculated on the basis of the corporate bond yield at the time. The difference can mean liabilities over 30 years under FRS17 can be double what they would be under MFR.

But actuaries are warning that MFR and FRS17 are very different measures.

The MFR valuation shows the scheme is able to pay transfer values while FRS17 shows its ability to pay benefits.

Friends senior technical manager Chris Bellers says: “Defenders of FRS17 say it only highlights deficits which are already there but with these numbers you cannot say that. If the figures show funding levels are half what the MFR level is, this can be very frightening and we might see more schemes go out the window.

Institute of Actuaries spokesman David Cule says: “It would be possible to get these different numbers. FRS17 and MFR are different measures of the same liabilities. The question is, are these real liabilities? FRS17 does not show a cash requirement and from a funding perspective can be irrelevant.”


MCCB guide sets out code rights

The Mortgage Code Comp-liance Board is publishing a new edition of its You and Your Mortgage guide which aims to inform consumers of their rights under the mortgage code.The guide includes a number of changes which aim to reflect the measures recommended in the DeAnne Julius report on banking.The changes include the removal of the […]

Norwich & peterborough – Quantum Account (11th issue)

Friday, April 5 2002 Type: High interest account Minimum-maximum investment: £1,000-£25,000 single life, £50,000 joint life Interest rates: 4% gross a year until March 31, 2003, 4.5% gross a year until March 31, 2004, 5% gross a year until March 31, 2005, 5.5% gross a year until March 31, 2006, 7.5% gross a year until […]

Schroders sees value still to be found in BBB bonds

Schroders believes the UK bond market still offers good value despite strong returns over the past two years.Head of sterling fixed income Robert Gall says Govern-ment yields have increased because the market expects interest rates to begin a tightening cycle that will peak at around 6 per cent in December 2003.But he claims value can […]

C&G offer doubles IFA fees On loans over £250k

Sales director Nick Hale says: “We are committed to intermediaries and recognise the value they add to our business. The intermediary payment incentive has proved to be very popular and, by increasing the payment per qualifying case, we are hoping to attract even more business.”


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm