---

Marconi Pension Fund

A legitimate vested interest. However, there is also a wider interest, because the pension schemes of members working in other companies and organisations could also be affected by the development of a new model. I want to ensure that the regulator has the right powers to protect people's pensions to ensure that confidence in pensions will be strengthened. Traditionally, and rightly, a pension has been backed by the covenant of a sponsoring employer, or by capital resources: that means an employer or capital standing behind the pension. In some new models emerging in the buy-out market, the security of an employer is taken away, but adequate capital has not been put in place to replace the certainty and security that the employer brings. That creates an asymmetry of risk—a business model where the provider benefits if all goes well, but scheme members or the PPF pick up the bill if things go badly. It would not be fair to members, or to all those schemes that pay the PPF levy, if we allowed new business models to develop in which a provider assembled significant financial risk without having adequate structures in place to manage that risk. Traditionally, if trustees are confident in the employer, they can decide on a funding and investment strategy that reflects the employer's ability to underpin the risks undertaken. The employer will benefit from lower contributions if the risk pays off, but will pay more if the investments underperform. Under the regulatory regime with respect to insurance companies, they must back their investment, longevity and other risks with capital, so the capital or the employer must stand behind the pension, which provides important security for the members. For those regulated by the FSA, the capital requirements are clear. Any new approaches to pension scheme risk management should have similar security. There should be capital or other supporting structures underpinning the risks. Where providers are based offshore—outside the UK regulatory regime—that causes concern. If it happens, we need further reassurance that appropriate controls are in place.