The Chancellor’s plans to abolish pension fund Minimum Funding Requirements (MFR) announced as part of yesterday’s budget speech has been cautiously welcomed by the Association of British Insureres (ABI).
The MFR was introduced following the Mirror Group pensions scandal to ensure pension fund solvency. However, the requirements are believed to have caused pension fund managers to opt for more cautious fund investment in lower-yielding gilts rather than stocks or venture capital funds. Ultimately the move has led to lower returns on pension fund investments and reduced bension benefits for members of the funds’ schemes.
Director-General of the ABI, Mary Francis, warned that a replacement for the MFR was required which required permitted greater flexibility whilst ensuring that pension funds could not be misused. Her own recommendation is a that “panel of ‘wise men’ who can set the discount rate provides a practical way to avoid market distortions and gives funds investment freedom.”
