The Chancellor's Response
The Chancellor in his Budget has said that the Government intends to take forward all the recommendations made by Paul Myners. This includes the abolition of the Minimum Funding Requirement.
Other consequences are:
- Once the principles for institutional decision making are agreed (following further short consultation) pension funds and in due course other institutions will be required to set out publicly whether they comply with the principles. The government will also undertake a review in two years time to see whether the principles bring about any behavioural change
- The government will legislate to require trustees to be familiar with the investment issues on which they are making decisions
- The government agrees that it would be helpful if the Law Commission could clarify the position on ownership of surplus
- The government will legislate to replace the MFR with a long-term scheme – specific funding standard, with additional protective measures for scheme members, including a statutory duty of care for the scheme actuary, stricter rules on voluntary wind up and an extension to the fraud compensation scheme. The Government's proposals for a replacement for the MFR are set out in a document “Security for Occupational Pensions” published on 7 March jointly by the Treasury and the DSS.
There are a number of extremely important changes as a result of the Myners recommendations.
- It was almost universally agreed that the MFR did not properly fulfil its function to provide protection for scheme members benefits while at the same time unnecessarily imposing additional liabilities on employers offering final salary schemes. It remains to be seen whether the government's proposals will be more effective
- Being a trustee of an occupational scheme is already an onerous task following the implementation of the Pensions Act 1995 provisions. This will be even more so following the Myners recommendations and there may well be a shortage of applicants for the trustees' jobs. Moreover the costs of implementing the Myners recommendations may significantly increase the administration costs for smaller schemes and may be a further catalyst in the move towards stakeholder pensions
- It is about time that the question of ownership of surplus funds under a final salary scheme is decided once and for all. Despite numerous court cases the position is still unrestricted. If the result of the Law Commission review is that surplus belongs to the employer this may encourage employers to retain their final salary schemes. However, if the Commission found in favour of the members this would almost certainly herald a stampede of employers looking to convert their final salary schemes to money purchase arrangements.