UK - The government is currently consulting on changing the tax rules around employer asset-backed pension contributions to defined benefit registered pension schemes.

HM Revenue & Customs (HMRC) has published a consultation document for parties who have been involved in asset-backed pension contribution arrangements or who consider using this type of pensions.

The consultation period, which started yesterday, will last until 16 August and includes two options.

The first would provide relief only when cash is received by the scheme. This would remove automatic upfront tax relief for asset-backed contributions, the government said.

The second option plans to align tax rules with accounting rules. This would involve amending existing tax rules to ensure the tax treatment of the arrangements as a whole accurately reflects the economic substance of the transaction.

Gavin Bullock, partner within Deloitte's pensions advisory team, said: "The current consultation is extremely timely, given the increasing market appetite for this type of structure. 

"Assets as diverse as property and receivables have acted as collateral and significantly improved the funding and security available to all pension scheme members. In 2011, we anticipate in excess of £3bn (€3.4bn) of assets will be used in asset-backed funding structures."

The consulting firm Mercer also welcomed the consultation period, saying asset-backed contributions can be a good funding solution for trustees and employers alike.

The pension scheme has its deficit addressed up front, and the employer's cash flow requirement is less onerous than under a typical cash-only recovery plan, according to Mercer.

However, the consulting firm agrees that, in terms of tax liability, there needs to be a level playing field between different structures for making contributions.

In other news, retailer Marks & Spencer (M&S) has seen its UK pension scheme funding surge by more than £500m, resulting in a surplus of over £160m, according to its most recent annual report.

In April 2010, M&S reported a deficit of £366m in its defined benefit scheme, but due to expected returns of £323m, as well as employer contributions more than three times higher than the preceding financial year, this deficit was completely eradicated over the following 12 months.

The £5.5bn fund has not only seen its assets under management increase in value since the company's previous annual report, but also witnessed an £83m reduction in its overall liabilities. As a result, the DB plan reported a £168m surplus for the year ending 2 April.

However, it was careful to highlight how easily the newfound surplus would be affected by external market factors, such as changes to the discount rate. It estimated that a 0.1% fluctuation would result in a £90m change in assets.

Additionally, it credited a £170m actuarial gain to a switch from the retail price index to the consumer price index (CPI) as a measure of inflation.

The report added: "If the inflation rate increased by 0.1%, the IAS 19 surplus would decrease by about £55m, and if the inflation rate decreased by 0.1%, the IAS 19 surplus would increase by about £45m."

M&S used a CPI rate of 2.7% for its calculations, while the monthly CPI rate for April stood at 4.5%, according to recent figures from the Bank of England.

Meanwhile, a survey by Aviva has found that 37% of UK families would be "happy" to be automatically enrolled into a pension scheme, once auto-enrolment is introduced.

According to the company's 'Family Finances Report' for spring 2011, only 15% of respondents would chose to opt out of any pension arrangements, with most of the people within this category being single parents concerned about the impact on salary after tax.

It also found that 39% of women were happy to be automatically enrolled, 4 percentage points ahead of men, while men were also more likely to opt out of new arrangements.

Paul Goodwin, head of pensions marketing at Aviva, said it was "encouraging" 74% of families felt they should be able to contribute to a workplace pension.

He also noted that more than half of respondents saw it as encouraging if the employer contributed toward their retirement savings.

"It is concerning, however, that a third (35%) feel they will either opt out or don't yet know what they'll do when automatically enrolled," he said. "For the long-term interests of customers, all parties concerned need to work hard to ensure opt-out rates are as small as possible."

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