UK – The importance for UK pension fund trustees to understand benefit security is greater than ever following the proposal to scrap the minimum funding requirement (MFR), according to Robert Collie, director of consulting at Frank Russell Company.

In a monograph entitled: “Where Pensions Come From”, Collie writes: “Investment markets are not always going to deliver double digit real returns, as they did for a prolonged period at the end of the last century.
“ Trustees should ensure their schemes remain secure through thick and thin and a thorough understanding of funding policy is the first step to that end.”

The article highlights four types of pension schemes for which the current model of funding might be inadequate, noting that mature schemes are worst off during times of volatile markets.
He implies that to improve financial security, the most effective steps are not necessarily tied to funding levels at all.

The UK government has proposed to replace the MFR with a series of measures such as better disclosure and a statutory duty of care on the scheme actuary.
Says Collie: “One concern among industry observers, which dates back many years, is that solvent employers have been able to walk away from any shortfall which may arise if they choose to wind up a scheme. By addressing this point, extending the fraud compensation scheme and requiring better disclosure of how schemes are being funded, far more is going to be achieved than could ever have been hoped from the MFR.”