Support the Myners cause

A possible solution to the conundrum facing the Government over the future of the minimum funding requirement (MFR), which relates to occupational pensions, emerged last week. Paul Myners, Gartmore chief executive and head of the Government's review, was guaranteed the support of much of the pension industry when he suggested that MFR should be abolished because it was "seriously inadequate".

A possible solution to the conundrum facing the Government over the future of the minimum funding requirement (MFR), which relates to occupational pensions, emerged last week. Paul Myners, Gartmore chief executive and head of the Government's review, was guaranteed the support of much of the pension industry when he suggested that MFR should be abolished because it was "seriously inadequate".

Introduced in 1997 to prevent a repeat of the Maxwell pensions scandal, MFR aims to ensure that any company providing an occupational pension to employees will be able to honour those commitments should it go bust. Each company pension is required to invest a proportion of funds in long-dated gilts. But MFR has been lambasted for not encouraging investment in private equity or venture capital because it is so obsessed with gilts.

The Government's consultation runs until the end of January and Mr Myners' report is not due until March, but his comments make interesting reading. He proposes greater transparency, which is welcome. But he also questions the inflexible practice of assessing the funding level of all pension plans in the same way. The actuarial assumptions imposed don't suit every individual plan or employer, which is why Mr Myners wants to give power back to pension plan trustees in making investment decisions. He says trustees should be debating investment assumptions rather than using a uniform statutory test.

The whole point of MFR was to prevent trustees having too much power and being able to misappropriate a load of pensioner money, à la Robert Maxwell. But Mr Myners suggests this can be avoided, and pensioner money safeguarded, by forcing trustees to publish an annual "transparency statement", detailing where the money is invested, its value and assumed returns and volatility. The Occupational Pensions Regulatory Authority (Opra) will receive a copy of the report, as will all beneficiaries. And if say, 10 per cent of scheme members want to complain, they can request an independent review, paid for out of the fund.

The Government has made noises that it agrees with Mr Myners' plan to extend the investment horizons of occupational pension schemes by encouraging a broader range of choices for funds beyond gilts. But it has been more reluctant to applaud his decision to abolish MFR, which either means that ministers aren't keen or that the Government is biding its time.

What might work in Mr Myners' favour is that he has made some suggestions as to a replacement for MFR, rather than merely criticising it. It makes sense to leave the trustees to get on with the job of investing pensioners' money in investments which have the potential to bring greater returns than government bonds. But equally, the Government needs to protect current and future pensioners by finding a balance between keeping a check on trustees and keeping scheme members informed.

Unless a better proposal comes up between now and March, the Government should listen to Mr Myners.