Pension reform could cost pounds 2bn

MANY companies will be forced to top up their pension funds as a result of the Government's long-awaited White Paper on pensions law reform, to be published later this week, writes Peter Rodgers.

The likely cost to companies of pounds 1bn to pounds 2bn over the next eight years alarmed the Department of Trade and Industry, which intervened with the Department of Social Security to delay publication. But DTI objections are believed to have been withdrawn late last week without significantly affecting the proposals.

The high cost is a result of new minimum solvency rules for funds, proposed in the Goode report on pension law reform last year. The report was commissioned as a response to the Maxwell affair.

Last December the Government conceded that these were too costly in their original form, and would force pension funds to switch the emphasis of their investment from equities to gilts, disrupting the markets. The DSS asked the Institute and Faculty of Actuaries to draw up revised proposals, published in March for consultation.

However, a DSS study of 500 companies, commissioned from actuaries, found 14 per cent did not meet the planned new standards, including a significant number of large funds. But while the standards are to be implemented in 1997, there will be a further five years for companies with a shortfall to catch up.

The Government is understood to regard the White Paper as a detailed framework for legislation and will discourage further discussion, saying the consultation excercise has been extensive.

The paper is to recommend an industry-funded compensation scheme covering 90 per cent of losses in cases of fraud, theft and misappropriation, but it will not cover poor investment of funds.

Peter Lilley, the Secretary of State for Social Security, has backed away from the Goode report's proposal for a national regulator in favour of expanding the existing Occupational Pensions Board.