The Pensions Regulator issued its annual funding statement for defined benefit schemes on 13 May 2016. This sets out the Regulator’s views on acceptable approaches to the valuation process for schemes with valuation dates between 22 September 2015 and 21 September 2016. The statement was accompanied by analysis of how these schemes might be affected.
The key points are:
- an Integrated Risk Management (IRM) approach is key, along with a clear assessment and understanding of the employer covenant, although trustees are not expected to eliminate all risk;
- open and collaborative working between trustees, employers and advisers is vital, so that all parties can be comfortable with the level of risk the scheme is exposed to and any mitigation measures put in place;
- trustees should start to plan for cashflow and liquidity issues that will occur when benefit payments exceed contributions;
- tPR expects most schemes to have larger than expected deficits and to review and refine their recovery plans;
- most schemes’ deficits are expected to be larger than expected, so changes to recovery plans are likely;
- the Regulator’s analysis suggests that many sponsoring employers have the capacity to increase their contributions without affecting their plans for growth: in such cases TPR expects trustees to seek higher contributions;
- trustees considering adjusting their assumptions on the number of transfers out as a result of the pensions freedoms should be aware that there is currently very little evidence to support such an assumption.
The statement and the accompanying analysis may be found on the Regulator’s website at www.thepensionsregulator.gov.uk.