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Pension safeguards under fire: government plans have been deemed counterproductive.

Document Cited in Related
Vincent
AuthorHayward, Cathy
PositionFinal-Salary Schemes

New measures issued by the Department for Work and Pensions to boost confidence in occupational pensions will lead more employers to abandon final-salary schemes and could even force some firms into insolvency, according to Deloitte & Touche.

Employers providing final-salary pensions are already struggling to cope with their schemes' rising funding requirements as a result of declining investment returns and the increased longevity of their pensioners. Under the new regime "they will find it increasingly difficult to afford their pensions liabilities", Andrew Mewis, a director in Deloitte & Touche's human capital practice, told Financial Management.

John Cridland, the CBI's deputy director-general, agreed. "If we make pension schemes too costly, employers will not be able to provide them," he said. "Insurance could be a solution, but the cost of occupational schemes has shot up hugely, and anything that adds to this could be extremely damaging."

The most controversial measure is a pensions protection fund (PPF) to guarantee scheme members a specified minimum fund if their employer becomes insolvent. The PPF would provide a 100 per cent pension for those members who have already retired, and 90 per cent of the benefits for those who are still working. The government forecasts that this will cost UK employers 375 million [pounds sterling].

But this vastly understates the potential liability...

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