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UK: 'Safety net' urged for final salary pensions

By Florien Gimbel
Financial Times, May 19, 2003

The UK's top pension fund representative is to call on the government to create a national compensation scheme, or "safety net", for members of final salary pension plans.

In an interview with FTfm, Terry Faulkner, chairman-elect of the National Association of Pension Funds, said the government should "think very seriously" about member protection. "With 23m people covered by final salary plans, it's a matter of great public interest."

On Saturday, the Financial Times disclosed that ministers were considering proposals to require company pension documents to carry health warnings, telling members when there was not enough in their schemes.

Only last week, 150 staff at Blyth & Blyth, a Scottish engineering firm, were told they had lost their pensions. This followed the collapse last year of ASW, a steel company, where workers lost most of their pension benefits.

The stockmarket downturn - plus the new FRS17 accounting standard that obliges companies to register the market value of a pension fund's assets and liabilities - has plunged many pension funds into deficit.

Countries such as the US and Germany already have national "discontinuance" schemes, which are largely funded by levies on pension funds. Mr Faulkner said the British government had shied away from the idea of a safety net, because it did not want to become "the insurer of last resort".

"If you are in a defined contribution plan, your savings go up and down with the market, but you can insure against that through asset allocation. In a final salary plan individuals cannot insure against the real risk - the insolvency of their employer."

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