UK Pension Mediation Service Launched

February 8, 2006 ( - The National Association of Pension Funds (NAPF) and the Centre for Effective Dispute Resolution have announced a new service to help pension fund trustees and employers resolve disputes over methods to reduce funding deficits.

The Financial Times reports that t he Pensions Mediation Service will seek to resolve potential conflicts “between the interests of sponsoring employers and scheme members . . . before the Pension Regulator needs to become becomes involved.”

The Association of Consulting Actuaries said proposed guidance from the Pension Regulator suggesting most companies could pay off deficits within 10 years could increase annual contributions by £15billion to £27billion, on top of the £30billion they paid into pension schemes in 2004, according to the Financial Times.   Just this week the Confederation of British Industry (CBI) warned the Regulator’s proposals could put many companies in financial crisis (See  UK Group Calls for Flexibility in Regulator’s Funding Proposals).

According to the news report, Christine Farnish, chief executive of the NAPF, said, “The new . . . regime places greater responsibility on scheme trustees to negotiate robustly with employers to ensure pensions are appropriately funded, and to monitor the financial strengths of the sponsoring employer . . . such a regime throws up possible areas of contention and this service will provide a cheaper, better way to resolve areas of dispute without . . . litigation.”

Unions have reacted angrily to plans by Rentokil Initial, the pest control and security company, to freeze its final salary pension scheme for existing employees. They also have threatened industrial action against plans by Co-op Group under which benefits would be based on career average rather than final salary at retirement.

In contrast, a deal this week between BAE Systems and its 40,000 UK employers over funding a £1.4billion deficit was praised by the union Amicus as a model of how employers should “seek to negotiate rather than try to impose terms.”   Under the deal to protect its final salary scheme for existing employees, the defense contractor has agreed to pay £800m, mostly in cash and property, while members will finance the remaining deficit through mechanisms including longer working or reduced benefits.   Also, the GMB union has welcomed plans by Corus, the steel group, to raise employer and employee contributions to protect its final salary schemes.