- Consultation indicates government is open-minded to employer and scheme concerns, says KPMG
- But a formulaic approach to smoothing could create as many problems as it solves, warns KPMG
Commenting on a consultation paper (PDF 268 KB) issued today by the Government on smoothing assets and liabilities in scheme funding valuations – as promised in the last Autumn Statement in response to concerns raised by employers, Mike Smedley, Pensions Partner at KPMG in the UK, said:
“The paper is a ‘call for evidence’ reflecting the fact that Government has reached no conclusions and the paper is disappointingly light on details. Perhaps this is no surprise given the technical difficulties and the mixed reaction from industry. Pensions funding is clearly long-term and should avoid excessive focus on short-term market conditions – and many feel that the Pensions Regulator is too dogmatic here. But on the other hand a formulaic smoothing approach could create as many problems as it solves.
“The paper asks for views on a number of questions and some of the key points are:
- It is non-committal on whether smoothing would be beneficial – the paper regurgitates much of the Pensions Regulator’s defence of the current system and its flexibility
- It suggests that any smoothing mechanism should be over a period between 2 and 5 years
- Whilst inviting views, the paper indicates that smoothing is most likely to be optional rather than mandatory, i.e. it would require trustee agreement
- The accounting standards (IAS19) are mentioned as being outside of Government’s remit
“Whilst it might prove difficult to reach a consensus on legislation for smoothing, the paper indicates the Government is open-minded to employer and scheme concerns. We therefore encourage those affected to respond to the consultation. Perhaps one route might be for the Pensions Regulator to facilitate more flexibility – and to make clear that it will not judge schemes solely by reference to current gilt markets.
“The paper also seeks views on a new statutory objective for the Pensions Regulator (in addition to its existing objectives) ‘to consider the long-term affordability of deficit recovery plans to sponsoring employers’. Whilst in theory the Regulator already reflects employers’ views, this change would be a positive move in ensuring that the Regulator is obliged by statute to take a balanced view.”
The consultation paper can be found here (http://www.dwp.gov.uk/docs/pensions-and-growth-call-for-evidence.pdf) with responses due by 7 March on smoothing and by 21 February on the new Pensions Regulator objective.
For further information please contact:
Margot Cowhig, KPMG Corporate Communications
Tel: 0207 694 4246 Mobile: 07920 274856: firstname.lastname@example.org
KPMG Press Office: 0207 694 8773
Notes to editors.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff.