Details of the pension protection fund, a new pension regulator and simplification of occupational schemes were unveiled with the publication of the Pensions Bill last week.
The bill also replaces the minimum funding requirement with a scheme-specific app-roach which the industry says will free up schemes to adopt an investment strategy that matches liabilities with assets.
The bill makes it clear that the protection fund will not be backed by the Government and will be able to reduce liabilities if funding levels are low. The fund is set to start in 2005 and the exact level of security is yet to be determined, with contributions not expected to be risk-related in the first year.
The new pensions watchdog, to be called The Pensions Regulator, first proposed in the Pickering report in July 2002, will replace Opra, with all staff transferring to the new body.
The regulator will adopt a light-touch approach, focusing on fraud and maladministration, and will have tough new powers on underfunding.
The bill says contracting out will be simplified although no details are given of how this will be done.
Secretary of State for Work and Pensions Andrew Smith says: “Where companies with underfunded pensions have gone bust, workers have found themselves severely short-changed on the pension they were expecting.
“With the pension protection fund, people in pension schemes can be much surer that they will get the pension they were promised.”
Confederation of British Industry chairman Richard Greenhalgh says: “Companies want to see the fund taking into account the risk of company insolvency as well as underfunding, otherwise, we will be in the unacceptable position of well managed funds effectively underwriting other schemes.”