Government's monumental overreaction to the Mirror Group pension scandal, the Minimum Funding Requirement (MFR), has retrospectively forced these employers to virtually double contributions to their DB pension schemes. These additional contributions are demanded, not because the employers have misbehaved or had previously underfunded their schemes, but to pay for the government's stealth tax on pension fund investments and the pension industry's catastrophic mishandling of the recent changes to the money markets.
If you think that it's the construction industry that is disorganised, customer-unfriendly and not providing value for money, then ask how much pension you will be receiving from the annuity you or your employer will be forced to buy when you are 75. It will be about half the pension you would have received for the same amount of cash 10 years ago.
A Treasury-driven government desperately trying to avoid admitting that pension values throughout Europe must fall, unless we all contribute more personally, has forced a shambolic pensions industry to overbuy gilt-edged stocks. This has distorted the gilts market by pushing up the price and so driving the yield down in an unstoppable spiral - all paid for by the powerless entrapped scheme employers.
That was the main driver of the pensions industry in lobbying for changes to the MFR, resulting in the Myners report recommending its replacement and Gordon Brown's recent budget announcement that the MFR will be scrapped. But nothing in these proposals offers any hope to the many smaller pension scheme employers caught by the imposition of this unjust, retrospective, technical underfunding.
More than half this alleged "deficit" of one scheme that I am aware of is covered by the contacted "terminal bonus" of its assured fund investment. The regulations disallow the value of this asset in the MFR valuation and further payments of 40% of the scheme's total value are demanded. It is a clear case of a government demanding money from employers under false pretences to force small schemes to overfund and so to protect the government from criticism.
This scheme was closed to new members in 1996, 105% funded, when the employer switched to contributing to its employees' individual pension schemes. If the employer doesn't pay up under duress, the government will put the company into liquidation.
An owner who started a scheme 30 years ago has had to sacrifice the whole of his own pension
To save another company from liquidation, the owner (who foolishly started the scheme 30 years ago) has had to sacrifice the whole of his own pension entitlement, just before he retired.
Nothing in the current proposals to replace the MFR offers relief from such employer abuse, just an attack on the competence and probity of scheme trustees and notice of intention to make it more difficult to wind up DB schemes and so escape from these iniquitous regulations. We cannot trust the government not to introduce further anti-employer retrospective legislation on pensions, when it suits it.
If the Treasury has any decency left at all, it will immediately exempt from the MFR all schemes that were closed before the regulations were introduced.
The message is clear. If at all possible, and at any reasonable cost, if you are a small or medium-sized employer with a DB scheme, then wind it up as quickly as possible and switch to contributing to individual personal schemes.
More important, trustees are to have less power but be given all the risk and all the blame. If you are a trustee of a pension scheme, resign as quickly as possible, ignoring the suggested bribes of future payment. It's not worth the high risk involved.
Postscript
Colin Harding is chairman of Bournemouth-based contractor George & Harding.
