The Pension System's Self-Inflicted Wound

In 1991, Robert Maxwell's ill-advised foray into the Sea caused a ripple effect that would contribute to the decline of better company pension schemes. Subsequent legislation, including the Minimum Funding Requirement, would further overregulate the industry, leading to a landscape where employers are hesitant to provide final salary pension schemes. The Labour government's 2004 reforms made trustees unsecured creditors of employers, adding to the regulatory burden.

Key Takeaways:

The introduction of the Minimum Funding Requirement in 1995 led to overregulation of the industry, paving the way for solvency standards that are "scrupulously overengineered".
The Labour government's 2004 reforms made trustees unsecured creditors of employers, leading to a decrease in final salary pension schemes.
Employers are increasingly hesitant to provide final salary pension schemes due to overregulation, resulting in a landscape where existing members are being shut out of these schemes.
The protective regime introduced last year is triggering the closure of cash-strapped employers, resulting in unintended consequences such as damaged confidence among suppliers and customers.
The Pension Protection Fund, a new safety net for scheme members, faces a potential solvency crisis in the next decade due to a decrease in companies paying its levy.
The government-sponsored report by Lord Turner recommends minor changes, including compulsory pension contributions of 3 per cent from employers.
The National Association of Pension Funds director, Robin Ellison, notes that the UK has "the best-regulated pension system that no one can afford".
The trend of employers closing or shutting down final salary pension schemes is on the rise, with an example being Caparo, which shut down a subsidiary due to a £36m pension fund deficit.
The court has placed a company into administration at the request of pension trustees seeking to protect its assets from trading losses, a new precedent.