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Government pension plans to hit PE

UK Government proposals to scrap the Minimum Funding Requirement will require many investee companies to put more money into pensions, making them less attractive investments.

New regulations for company pension schemes could slow the UK’s private equity industry, according to a human resources consultancy. It believes proposals for a new pensions scheme will require higher levels of cash investment for many companies, which will make them less attractive investments.

The UK government in March announced its plans to reform the Minimum Funding Requirement (MFR) for company pension schemes. It proposed a pension scheme that would tailor itself to individual companies as a replacement for the current unwieldy system.

But human resources company William M. Mercer has attacked the government over its proposals. In a paper submitted to the Department of Social Security (DSS) and the Treasury, it says the impact of the proposals, which Mercer believes will entail higher spending, will be “more radical than may first appear”.

Private equity firms will be worst hit by higher company spending. “Many schemes inherited by private equity owners will not be sufficiently funded to provide security in a private equity context,” said Mercer’s Stuart Benson. “Underfunding must be corrected within three years, usually during the lifetime of a private equity investment. Since cash outflow is the last thing a private equity firm wants, this could severely diminish the attraction of the investment itself.”

A spokesman for the DSS declined to comment on details because nothing had yet been decided. “We have had a consultation on proposals, but as yet there is no replacement for the MFR,” he said. “We are working with the pensions industry to develop proposals for legislation when there is parliamentary time.”