Pension Regulator plans

Only those companies that are incapable or unwilling to make up their pension deficits will be subject to the scrutiny, and the plans aim to put in place a series of triggers that will allow pension managers to calculate whether they are making up their deficit at a rate acceptable to the regulator. When a trigger point is reached, the regulator may investigate further to decide whether intervention is necessary.

On the regulator’s hit-list will be those funds whose targets fall below 70% to 80% of the full buyout measure (which values the cost of securing members’ benefits with an insurance company), because this is the range into which typical schemes, ie full funding on the FRS17 basis or on the Pension Protection Fund (PPF) basis, falls. If a fund falls below this range, the regulator gets involved.

Those funds, which have a recovery period of over 10 years, will also be susceptible to regulator interference. In those cases where both trigger points are set off, obviously the chances of the regulator becoming involved is much higher.

The consultation period for this set of proposals is open until late January/early February, but it is expected that many employers and trustees will now put in place a strategy to make good their deficits so as to minimise the risk of regulatory intervention. PwC carried out research for the regulator and found that 65% to 80% of companies can pay off their pension deficits within the time specified, using no more than 25% of their free cash flow.