The Pensions Regulator has issued new guidance to the trustees of pension funds, which means companies with deficits may be able to pay lower contributions and be given longer to pay off deficits. Trustees may also be able to use different ways to value the fund, which would reduce companies’ liabilities.
In its annual guidance to defined benefit scheme trustees, published last week (May 9), it advised that trustees might wish to take a more lenient approach towards companies struggling to plug holes in their pension schemes.
It said: “Where there are significant affordability issues trustees may need to consider whether it is appropriate to agree lower contributions and this may also include a longer recovery plan.”
More relaxed approach
The shift to a more relaxed approach comes as the regulator has been directed by the government to take into account a company’s growth prospects when considering pension scheme deficits.
The Pensions Regulator is going to be given a new statutory objective to ensure that scheme funding demands take the employer’s interests into consideration as well as those of members and the Pension Protection Fund.
The regulator said it would also allow trustees more leeway on setting of the “discount rate”, which could result in reduced liabilities.
Michael O’Higgins, chair of The Pensions Regulator, told BBC Radio 4’s Today programme: “The best guarantee of a good pension is a strong company.”
He said trustees needed to find a balance between the needs for a strong company and the requirements for a company to plug any pension fund deficit.
“The trustees of pensions schemes can decide their strategies not just on interest rates from bonds or gilts, but on the return on their assets through investing in equities and other things,” he added.
“They have always had this latitude but we are making sure they use it. We are clarifying their powers.”
Pension fund liabilities have affected several large food manufacturers. A report by City analyst Panmure Gordon said that Premier Foods was probably “a zombie company” because the cost of its interest and pension liabilities meant it was unable to reduce its high debt levels.
Last month, Dairy Crest adopted a novel approach to improve the funding of its pension fund, by awarding it a charge over 20Mkg of maturing cheese in its inventory, with a value up to £60M.
Meanwhile, Steve Webb, the pensions minister, has warned there might be only be a year to save company pension schemes that offered a guaranteed payout to savers.
Up to the end of April, 5,142 of the nation’s 6,316 private sector schemes were in deficit, according to research by the Pensions Protection Fund. The total shortfall between liabilities and assets totalled £257bn.
Webb said: “We've probably got 12 months to save DB [defined benefit pensions]. It could be that, like on an episode of Casualty, there is no point trying to apply electrodes to the corpse, but it is possible that we can save a version of DB [otherwise known as final salary schemes]."