Mr May, pensions partner for consultancy PricewaterhouseCoopers, said he welcomed the move to give the regulator a new objective to support scheme funding arrangements that were compatible with sustainable growth for the sponsoring employer.
He said: “It is great that the regulator will now have a formal obligation to consider employers’ growth prospects when setting funding arrangements. This will help ensure employers are not left with unmanageable funding obligations that damage their growth prospects.
“However, in order for this to work, it is vital that the exact wording is clear and appropriate enough to give real significance to this new power.
“If properly worded, the regulator’s new objective eradicates the need for smoothing. Employers being squeezed by their pension scheme should balance the cash demands on the business with funding the pension scheme, rather than relying on the artificial position that would have been achieved through smoothing.”
The precise wording of this new objective will be set out in legislation to be published by the department for work and pensions later this spring.
Adviser view:
John Broome Saunders, actuarial director for London-based Broadstone, warned that the new statutory objective for the regulator could damage security of benefits for DB pension scheme members.
He said this could lead to lower overall deficit funding rates, adding: “The majority of DB scheme sponsors will want to argue that sustainable growth requires greater investment in their business and thus lower contributions to fund pension deficits. Larger deficits mean less security for members and a heightened chance that schemes end up cutting benefits and being dumped in the Pension Protection Fund.”
