Breathing space for pension funding

The Pensions Regulator is offering some ‘breathing space’ to employers over the funding of their defined benefit pension schemes.

In recognition of the challenges presented by the current economic climate, employers will have longer to fund pension scheme deficits.

This means that some employers will be allowed to pay back their deficits over longer periods of time, reducing the costs associated with providing final salary pensions.

Greater breathing space will not be offered to all employers.

Those running schemes that are significantly underfunded where higher contributions are affordable will still be expected to take steps to cut deficits.

It is expected that these new rules will apply to approximately 300 pension schemes which offer benefits to 600,000 members.

With gilt yields so low, in part due to the government programme of quantitative easing, it is likely that some of these schemes would have to close if requirements to slash long-term liabilities in the short-term were imposed.

Final salary pensions are already an endangered species in the private sector. It is good to see this pragmatic approach from The Pensions Regulator at this time of extraordinary market conditions for pension scheme trustees.

Those with membership of any of the schemes subject to these relaxed funding requirements should continue to monitor the financial strength of their employer and the scheme, as well as understanding any guarantees offered by the Pension Protection Fund.

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