UK Group Calls for Flexibility in Regulator's Funding Proposals

February 6, 2006 ( - The Confederation of British Industry's (CBI) response to the UK Pension Regulator's proposals for funding standards warned they could put many companies in financial crisis.

A news release from the CBI said its two major concerns are:

  • The Regulator’s ‘triggers’ for determining at-risk pensions will be regarded by pension plan trustees as ‘norms’ and will mean individual circumstances of companies will be ignored.
  • The suggested 10 years to fix funding shortfalls will leave some companies with cash-flow problems, and should be increased to 15 years for firms in a strong financial position.

The CBI said the Regulator’s proposals risk sending one in five schemes into a cash-flow crisis.   “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.   A recovery period trigger set over 10-15 years, would encourage trustees to agree to this,” said John Cridland, CBI Deputy Director-General.

Cridland also said,   “… the proposed triggers are too rigid and the Regulator has got to ensure that trustees realize that the triggers are not hard and fast rules that need to be stuck to come what may.”   In its release the CBI said that using the UK’s FRS 17 accounting rule and scheme liabilities to determine at-risk schemes was a good plan.   However, the group disagreed with the Regulator’s proposal to use a “buyout” percentage as a trigger to take action

The Regulator issued guidelines last fall that said it may intervene with schemes that are not able to make up pension shortfalls within 10 years or with schemes for which trustees and companies can not agree on how to plug the shortfall.   The agency’s report also said it plans to use measures such as theUK‘s FRS 17 accounting rule to help it decide if a plan’s funding status should trigger the group into taking action (See  UK Regulator to Seek Out At Risk Pensions).

The CBI response to the Pension Regulator is  here .