New scheme wind-up rules mean that there is technically no difference between employers and life offices offering final-salary schemes, yet they are subject to radically different accounting systems, says Scottish Equitable pensions development director Stewart Ritchie.
Ritchie argues that the introduction of rules requiring solvent employers which wind up schemes to buy out benefits in full means that occupational schemes are tech-nically the same as life offices offering single-premium deferred annuities which guarantee income.
But he says virtually all the UK's occupational schemes would fail the FSA solvency tests that life offices are obliged to satisfy.
Ritchie says the effect of the rule change is to create cast-iron guarantees payable by companies, a change that has not yet been fully appreciated by equity markets.
The Department for Work and Pensions introduced new rules on June 11 to prevent employers closing schemes in deficit which had left many workers' pensions badly hit.
Ritchie says: “I am still unable to find anyone who can tell me the difference between a defined-benefit scheme and a life company yet I doubt that there is a single employer in the country running a definedbenefit scheme that would satisfy the FSA's reserving requirements.”
Opra communications director Nick Edmans says: “The new rules create a robust structure that gives the employer as much leeway as possible. Anything that gives the employer more flexibility takes money out of the pockets of members and employees.”