A second wave of final salary closures is on its way unless the Government brings in legislative changes to encourage more shared risk schemes, says the Association of Consulting Actuaries.
Speaking this week at the NAPF conference, ACA chairman Ian Farr said despite the recent reduction in scheme deficits, many more schemes look set to close to future accrual.
He said employers are unwilling to continue with pension arrangements that have the potential to damage the financial performance of their business.
To defend against further closures, he said the Government should deliver legislative changes to encourage more shared risk schemes, rather than just sit back and witness the wholesale adoption of defined contribution schemes.
Farr says the Government’s current deregulatory review offers the opportunity to implement the legal changes necessary to encourage more risk sharing schemes to develop, as currently their development is restricted as most have to be set up under the defined benefit pension regime.
The ACA has submitted to the Government its proposals for the legal changes needed to establish a simple shared risk scheme category.
Farr said: “Risk sharing schemes can offer the ‘safety valve’ to provide the degree of cost and benefit predictability that employers need, whilst providing members with a more stable pension than defined contribution, with this pension continuing to be indexed pre and post retirement.”
Hewitt actuary Richard Mulcahy said: “The pensions delivered under these shared risk schemes would be better and more stable than that likely from the vast majority of DC schemes. Importantly, employers will be able to control contributions, better control their potential s75 debt- which would exclude targeted increases- and there should be lower PPF levies and more flexible pension accounting rules.”