The long awaited consultation document on the review of the Minimum Funding Requirement (MFR) was issued by the Government today. The document considers the review by the Faculty and Institute of Actuaries. The main recommendations in the Actuaries' Report include:-
- proposal for the MFR test to be based solely on bond yields (to be derived from a new composite index), with an allowance for the excess expected return from investments other than bonds, for valuing non pensioner liabilities;
- in addition to the MFR test there should be a security measure which would indicate the level of cover achieved against a stronger test, designed to give all members a high chance of receiving their accrued benefits on winding up.
Recognising that the proposed changes to the MFR test will take some time, due to the number of parties which will be involved in the consultation process, there are recommendations for interim changes to the current MFR basis covering:-
- mortality assumptions, assumptions for pension increases and the equity market adjustment factor;
- a simplified approach to setting minimum contributions and abolishing the requirement for annual recertification;
- the introduction of a formal mechanism for a regular review of the assumptions underlying the new MFR test; and
- continuation of the current position in relation to minimum transfer values and debt on the employer.
The new test is designed to be of a similar strength to the current test although for most of the period since 1983 it would have been easier than the current test. The Government has welcomed the Actuaries' Report and in the short term is considering whether to put in place some of the limited suggested changes. However, it also wishes to explore other possible approaches, ranging from amending the current MFR to abolishing it altogether and finding another structure.
Further details are available on the following web-sites:
DSS: www.dss.gov.uk/publications/dss/2000/mfr/index.htm
HMT: www.hm-treasury.gov.uk/pub/html/reg/index.html
Actuaries Report: www.actuaries.org.uk/pensions/mfr_index.html
For further information contact Mark Grant, Mark Atkinson or your usual contact in the pensions department on Tel +44 (0)20 7367 3000. Alternatively, E-mail Mark Grant at mark.grant@cms-cmck.com or Mark Atkinson at mark.atkinson@cms-cmck.com
