Pension funds have started to lobby for the scrapping of the Minimum Funding Requirement ahead of the start of a formal review process, due to start this spring.

National Association of Pension Funds chairman Alan Pickering says: "We have always been opposed to the MFR and believe that disclosure of how well pensions promises stand to be met through a solvency standard is a better approach.' He points out that the MFR, far from protecting pension funds, has exposed them to investment risks. The idea of a solvency standard is also being promoted by Scottish Life chairman Tom Ross, a recent Government adviser on stakeholder pensions. He points out that the MFR is flawed because it does not guarantee that any individual will get the pension he or she is promised. The Institute and Faculty of Actuaries is due to produce a paper on an MFR review this spring. Pickering believes that this should be followed by consultation: "We don't want to be stitched up by the Government and the actuaries.' The MFR was introduced following Robert Maxwell's theft of pension fund assets from the Mirror, and other pension schemes. It was seen as a way to ensure that pension funds had sufficient cover for liabilities, through the purchase of an appropriate mix of UK equities and UK bonds. Ironically, the Mirror pension fund and Aon Consulting, which looks after other ex-Maxwell schemes, confirm that no fund member has lost money as a result of the affair. There is even a chance that some will end up in profit if (a big if) Kevin Maxwell fulfils his pledge to compensate them personally.While not belittling the pain and uncertainty which members went through in the early 1990s, it can now be argued that the pre-MFR system was robust enough to withstand the Maxwell shock. The creditworthiness of Mirror Group Newspapers was important, twinned with the strength of its case in fighting for compensation in the courts. In contrast, it can be argued that the MFR is actually weakening the pension funds it was designed to protect, in the wake of Chancellor Brown's costly abolition of the ACT tax credit, which originally stimulated the current review. The weakening would result from investment risk relating to the enforced buying of index linked and long dated gilts by pension funds with insufficiently funded liabilities. Yields on index linked gilts are 200 basis points lower than equivalent overseas stocks, largely as a result of MFR-inspired purchases. Those on long dated gilts have also been pushed right down. The low level of issuance in the market is a big factor. The Government is unlikely to issue more in the foreseeable future. As a result, pension funds forced to buy gilts face a serious risk of investment loss. Highly matured, poorly funded, schemes are being forced to pay a premium to secure their liabilities: "It's an absolutely infuriating situation,' said one. Alan Pickering said: "We have always been opposed to the MFR which amounts to a short-term snapshot of a long-term situation.'Tom Ross said the MFR is giving false reassurance to members that their individual pensions are safe. He views the idea of a central discontinuance fund as a "dubious replacement'. He recommends a solvency standard, telling each member exactly where they stand on their future pensions entitlement. They could then contribute to improvements, lobby for better funding, or take personal arrangements, to top up as necessary, is better. The likes of Credit Suisse First Boston suggest that a review could lead to the inclusion of corporate bonds as a way of meeting MFR. But Pickering reckons this solution is too narrowly based, and will only result in corporate bonds hitting a premium as well. He thinks that a weakening of MFR so that funds can reduce their reliance on gilts is also an incomplete solution. The big problem is that the Government may not be prepared to scrap the MFR, for fear that it will be accused of forgetting the pain of the Maxwell affair. The issue of investment risk relating to MFR needs to be spun to politicians with great vigour to prevent this.