The UK's pensions regulator has published a consultation document of proposals of how to regulate company pension schemes that are in deficit.

The document outlines the regulator’s approach to company pension schemes which face shortfalls and the powers the regulators will have to enforce the new rules. The proposals have been published for discussion before they are formalized in December when the code of practice is put before parliament.

The new measures suggest that pension trustees are to be afforded greater powers to determine company contributions in the rectifying of pension pot shortfalls. Trustees could be armed with the power to instruct companies to increase their pension contributions in order to make up current deficits. Companies are expected to eradicate their deficits within ten years.

However, while trustees will be given greater powers to demand greater contributions, the pensions watchdog also said that it would hold the power to cut the final salary benefits paid to workers if it believes that their employer cannot afford the pensions already promised.

The developments come in response to European requirements that companies form firm initiatives to resolve their pension shortfalls. The European Union pensions directive ‘scheme specific funding’ calls for trustees and companies to negotiate a schedule for covering the company’s pension fund deficit.

The pensions regulator said that the arrangements would be largely left to the trustees and companies. However, it would monitor the situation by requiring that schedules are submitted to it for approval.

According to The Times, reaction to the consultation document has been positive. The newspaper quoted Francis Fernandes, head of actuarial at ABN Amro: Funding discussions between employers and trustees can be difficult, so I’m pleased to see the regulator has now marked out the boundaries within which future contribution deals can be struck.

The new scheme funding requirements are part of wider reforms set out in the Pensions Act 2004.