The UK's leading business lobby group wants employers to be given more time to clear ballooning pension fund deficits and the government to underwrite the agency that takes over schemes when companies go bankrupt.
The Confederation of British Industry (CBI) said in a report published on Tuesday that the Pensions Regulator that supervises work-based schemes should extend the grace period for companies to whittle away their deficits to 15 years from the current 10.
UK firms contribute 30 billion pounds ($47.4 billion) each year to defined benefit pension schemes and that figure could rise as schemes' assets fall further, hit by deteriorating markets, the group said.
It criticised the fact that UK pension assets and liabilities are marked to market – assessed at their current value rather than their book value — and called for "an element of smoothing" to reflect the fact that pension obligations are staggered over a long time.
A further measure of government support for corporate pension schemes would be to boost issuance of long-dated bonds, helping funds cover their long-term liabilities.
Buy-out company Pension Corporation recently said there were currently 30 billion pounds of gilts on the market with durations in excess of 20 years, but demand for such vehicles is potentially up to 10 times greater.
The government should also consider issuing longevity bonds to start a market in instruments that manage the risk associated with pension claimants' lengthening lifespans, the CBI said.
Earlier this month the Pensions Institute at the London-based Cass Business School called for the government to issue up to 35 billion pounds of longevity bonds to help pension schemes and insurers manage the associated risks. [ID:nLU976290]
The CBI said it also wanted government support for the Pension Protection Fund (PPF), the UK agency that takes over underfunded pension schemes when employers goes bust.
The PPF finances itself by charging a levy on all pension funds eligible for its help and manages the assets of the pension schemes it takes over. Though accountable to parliament, the PPF receives no government money.
"The PPF was not designed to deal with catastrophe risk," the CBI report said.
"In the interests of reassuring members of schemes and businesses who pay the levy, government should offer an in extremis guarantee to the PPF."
Neil Carberry, head of pensions and employment policy at the CBI and the report's author, added: "We believe the PPF does have the ability (to meet its liabilities), but financial services are about confidence. The banking sector now benefits from the confidence that was restored by government's standing by banking deposits.
"There is no real reason why the PPF's position should be different from the banks'."
A spokesman for the Department of Work and Pensions told Reuters the existing regulatory framework was "stable, durable and designed to cope with current economic challenges."
