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The CBI has warned that the approach of the Pensions Regulator to new funding rules for defined benefit pension schemes risks plunging 20% of companies into a cashflow crisis.
New pensions funding rules came into force last December, which should allow trustees and employers to agree funding arrangements that match the individual circumstances of the scheme. The rules replace the old Minimum Funding Requirement (MFR), which was widely seen as inflexible and unhelpful.
John Cridland, CBI Deputy Director-General, explained: “Business called for a new scheme specific funding standard for pensions, but without significant improvements to the Regulator’s proposals, trustees could see this as MFR mark II and we’ll be back at square one.
"The Regulator’s proposals to use triggers as a way of identifying those schemes at most risk of not meeting their liabilities are welcome.
"The proposed triggers are too rigid and the Regulator has got to ensure that
trustees realise that the triggers are not hard and fast rules that need to be
stuck to come what may. As it stands, trustees will feel compelled to make
companies adopt aggressive new funding plans – regardless of the impact on the
business – or on scheme members.
“Business accepts there should be a period of time in which a scheme should eliminate any shortfalls in its target funding levels. But under these new proposals, companies with a strong credit rating could be expected to make good their deficits over ten years even if this causes a severe cashflow
problem.
"This is simply not acceptable – financially stable companies must have
flexibility to plan how to invest their own funds and reduce their pension
deficit in a way that fits their financial position and business plans”.
Source:
RedAlert
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