Excessive regulation 'threatening' final salary pension schemes

31 July 2008

Red tape is endangering the future of some three million final salary pension schemes, the CBI has warned.

Speaking at an event for business leaders, Richard Lambert, the CBI's director general, said that the additional regulatory pressures being applied to providers of defined benefit schemes, which include final salary pensions, are risking the closure of many schemes.

Mr Lambert said: "Pension deficits are back near the top of the corporate worry list. There is an incoming tide of complex and expensive new regulation that threatens to drive an extra nail into the coffin of many DB schemes."

"Firms want to preserve their excellent schemes for employees, but the pressure on them is continuing to build. This spring, we have seen another assault on boardroom confidence. And the result is growing pressure on the boardroom to be wary of involvement in UK defined benefit – even to avoid it altogether where possible.

Mr Lambert added that changes proposed by the Accounting Standards Board and the Pensions Regulator, and the volatility of the Pension Protection Fund levy have all added significantly to the burden of providing a DB pension.

The CBI has put forward three proposals aimed at reforming the regulatory regime.

These include turning back the tide of poorly justified regulation by taking a tougher, risk-based approach to future pensions legislation; delivering more stability for firms by making the Pensions Protection Fund levy and other costs more foreseeable and stable; and giving companies the freedom to design schemes that work, so long as the funding and covenant is there to meet the promise, and scheme members understand what is on offer.

Mr Lambert concluded: "Without these three simple steps, we will see a significantly shorter life for DB accrual than we would all hope for. That would be a matter of great regret to our members. And it would also reflect badly on government, which would face the political fallout from its role in the ending of accrual."