Deloitte comments on the Pension Regulator’s announcement on Employer Related Investments
Regulator guidance provides pragmatic approach for assessing alternative funding arrangements
11 November 2010
Feargus Mitchell, pensions advisory partner at Deloitte, said:
“We welcome the statement made by the Pensions Regulator on Employer Related Investments (ERI). This guidance is helpful for both corporates and pension trustees who are involved in scheme funding negotiations and investment decisions.
“In the current cash-constrained environment, The Regulator recognises that alternative funding arrangements can improve the support provided to a pension scheme, reduce risk to members and, at the same time, strengthen the covenant of the sponsoring employer. In appropriate circumstances, alternative funding mechanisms can be an effective and more affordable way of funding schemes for an employer. The guidance provides a pragmatic approach for assessing alternative funding arrangements.
“The application of the ERI restrictions to different scenarios, including alternative funding mechanisms and investments in collective investment schemes, is complex. We agree with the Pensions Regulator that both trustees and the company should take advice to ensure that the ERI regulations do not apply to such arrangements. Alternative funding mechanisms must be in the best interests of pension schemes, their members and sponsoring employers.
“We welcome the Regulator confirming that alternative funding structures can benefit both members and the pension scheme. We have worked closely with a number of major companies to implement Deloitte Pension Funding Partnerships (PFP)*. These have immediately improved the aggregate funding position of their schemes by over £2bn for the benefit of members in an efficient and affordable way.
“We know the UK faces challenges in the provision of good quality retirement benefits in the future. In challenging economic times, the use of such structures can be a win-win for both companies and trustees; achieving a commercial balance between the funding requirements of trustees, the provision of greater security to scheme members and the need to continue to invest in the future of their business.”
* The Deloitte Pension Funding Partnership is a partnership between the company and the pension scheme, backed by valuable assets.
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