Actuarial firm Watson Wyatt has expressed concerns that the pensions regulator may be overstretching itself with its proposals to tackle under-funded UK pension schemes.
According to the firm, which advises many companies on their pension schemes, more than 2,000 employers may have difficulties meeting the funding targets set by the regulator.
Nigel Bodie, senior consultant at Watson Wyatt said: This scheme-specific approach is better than the Minimum Funding Requirement. On the other hand, the Regulator expects the new scheme funding regime to have a significant impact on behavior. This translates into higher contributions from employers.
In order to conform to the targets set by the pension regulator, an additional GBP130 billion in additional contributions to company pension schemes will be needed, spread over no more than ten years.
Watson Wyatt is concerned that the regulator’s risk-based strategy to pension schemes may unnecessarily require firms to make high contributions to guarantee the fund target.
It also believes that a measure of scheme funding given prominence by the regulator know as the buy-out cost – based on the price which an insurance company would charge to guarantee the benefits – is too expensive for most companies.
Mr Bodie said: Continued use of the term buy out by legislators and the regulator gives trustees and members an unrealistic notion of the security of pensions. The government has decided to improve the security of pensions and tens of billions of pounds will flow into pension schemes as a result. But the truth is that nothing in life – including a pension – is ever completely secure.