The Government is considering allowing defined benefit pension schemes to ‘smooth’ funding valuations as part of plans to reduce costs for UK businesses.
The Department for Work and Pensions has issued a call for evidence, titled ‘Pensions and Growth’, looking at whether legislation should be introduced to allow DB schemes to use long-term average asset prices and discount rates, which are used to value liabilities, to calculate their funding position.
Currently, the value of pension assets and liabilities is worked out on a “marked-to-market” basis, meaning the figure can be very volatile.
The Government is also considering introducing a new objective for The Pensions Regulator to take account of the long-term affordability of deficit recovery plans to sponsoring employers.
Pensions minister Steve Webb (pictured) says: “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.”
However, the National Association of Pension Funds warns the proposals will do nothing to help schemes who have undertaken valuations in the past year.
NAPF policy director Darren Philp says: “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.”
The Confederation of British Industry has been pressing policymakers to rethink the way pension assets and liabilities are calculated.
CBI director for employment and skills Neil Carberry says: “Given pension schemes pay benefits over 80 to 100 years, regulation has to reflect this. Too much of our current approach to regulating and pricing pension schemes assumes that the situation today will persist for a century.
“Injecting economics into what up until now has been a purely actuarial debate will increase business confidence, allowing more investment in growth and jobs. We’re pleased the Government has listened to the CBI on this.”
Forty Two Wealth Management partner Alan Dick says: “Funding a pension scheme is a long-term commitment so it makes sense to reflect that in the way assets and liabilities are valued.”