The Pensions Regulator has confirmed it plans to give employers with defined-benefit pension schemes “greater breathing space” to fill deficits.
Over the past year, the eurozone crisis and the Government’s quantitative easing programme have caused a spike in demand for UK gilts. As a result, gilts are becoming more expensive, depressing interest rates and reducing the return on pension fund investments.
In an interview with Money Marketing in February, TPR chief executive Bill Galvin (pictured) vowed to ease the funding requirements on DB pension schemes.
In a statement published today, the regulator confirms it will allow some employers to pay back pension deficits over a longer period of time.
Galvin says: “Employers that are struggling have greater breathing space to fill deficits over a longer period.
“However, we will draw a distinction between this group and those cases where schemes are substantially underfunded and employers are able to afford higher contributions. In such cases we will expect pension trustees to be taking steps to put their scheme on a more stable footing.”
National Association of Pension Funds chief executive Joanne Segars says: “It is good that the Regulator will look sympathetically on employers that have experienced significant deficit increases by allowing extensions in recovery periods.
“However, as the negative growth figures this week have shown, the outlook for the economy remains highly uncertain and there is the possibility that more QE will unfold.”
Confederation of British Industry director of employment and skills policy Neil Carberry says: “This statement provides some useful clarity about what is expected of pension funds and employers when they come to repair deficits in their schemes.
“However, the Bank of England’s quantitative easing programme has exposed a fundamental problem with the way pension scheme funding is calculated, which the regulator fails to address.
“It cannot be right that pension schemes with very long-term liabilities, which make them less vulnerable to short-term market fluctuations, have to fund against spot valuations.”