Member Article

CBI responds with caution to Pension Regulator statement

The Pensions Regulator has provided some clarity around what is expected from pension funds and employers, but they have failed to address the side effects of quantitative easing, say the CBI.

The Regulator has assured that the majority of schemes will not have to change their existing funding plans, in a move which will help reassure trustees that they should focus on the long term health of the scheme, rather than day to day fluctuations.

However, the CBI believes that Bank of England’s quantitative easing programme has also exposed a fundamental problem in the way pension scheme funding has failed to address.

Commenting on the Pension Regulator’s statement, Neil Carberry,CBI director pf Employment and Skills policy said: Although QE has been necessary to support the economy, one side effect has been to make pension scheme deficits look artificially big by lowering gilt yields at the very moment when firms are also doing their three-yearly valuation.

“While the Pensions Regulator acknowledges this side effect of QE in its first annual statement, its advice to trustees fails to deal with the problem - how ‘technical provisions’, the amount required to cover a scheme liabilities, are calculated.

“We need to take more account of the effects of QE when making the calculation.”

Deficit increases have been distorted by Quantitative Easing have caused employers to divert money away from investment in growth and job creation, which can have serious implications for a firms’ credit ratings, as well as their ability to raise finance and their market outlook.

“The best form of protection for members’ employment benefits is a healthy, solvent employer and the Regulator and DWP should put this first.” He continued.

He is now calling for the current method of valuing pensions to change.

Neil added: “It cannot be right that pension schemes with very long-term liabilities, which make them less vulnerable to short-term market fluctuations, have to fund against spot valuations.

“Greater smoothing is required using data over many months rather on a single day.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .