Commenting on the reminder from today’s Purple Book figures that DB schemes must prepare for the new Funding Code, Susan McIlvogue, Head of DB, Hymans Robertson says: “The Purple Book published today reveals that a significant number of schemes are still underfunded, with 57 per cent having a combined deficit of £160 billion as 31 March 2019. This provides a vital reminder that many schemes must act now to avoid being caught unprepared by a revitalised regulator and new Funding Code.
“The Regulator has previewed the new DB Funding Code for much of 2019 and we’re now keen for an industry consultation to start to provide certainty and detail and end speculation. The new Funding Code will have significant implications for many trustees and sponsors, and they need greater clarity so they can prepare for the impact.
“TPR has been very clear on its regulatory expectations from DB schemes and this further legislation will provide it with a broader arsenal of powers and penalties at its disposal. It is more important than ever for a scheme to understand how it may be perceived by TPR, to prioritise any necessary changes and to identify where it might be taking unacceptable levels of risk. By addressing this as early as possible trustees and sponsors will be in a stronger position and more likely to avoid intervention.”
Commenting on the implications for schemes heading towards wind up, given the Purple Book’s figures on the continued reduction in number of DB Schemes, Susan continues: “The Purple Book also reveals that the universe of DB schemes continues to shrink, with 5,436 schemes comprising 10.1 million members. As more schemes get closer to their finish line, they need to start planning for wind up, which is often the most complex project a scheme will ever undertake. Preparations should start early with expert oversight to maximise value for members at this important stage in a scheme’s lifecycle.”
Commenting on the PPF’s 2019 Purple Book, Matthew Harrison, Managing Director at Lincoln Pensions commented:“Although funding levels have improved and the trend for de-risking has continued, the most underfunded schemes still rely heavily on investment returns to reduce their deficits. Given the uncertain macroeconomic environment, it is essential that trustees have tested the ability of their sponsor’s covenant to stand behind the resulting risks. Building contingency plans for an investment shock should form an important part of this process.”
Richard Williams, Director of Policy and Communications at Clara-Pensions, said: “This year’s PPF Purple Book shows the continuing challenges for smaller DB pension schemes. While the overall number of schemes fell by almost 100 to 5,436 in 2019, the vast majority now have less than 1,000 members and assets of less than £100m. The number of smaller schemes remained broadly unchanged which may point to a lack of options in the market.
“Many of these smaller schemes face the stark choice between an unattainable insured buyout, the possibility of entering the PPF or simply accepting a continued drain on employer time, energy and resource. The PPF’s data also reveals that these schemes proportionately pay higher levies than larger schemes and that their sponsoring employers are at a higher risk of becoming insolvent. Schemes with fewer than 1,000 members payed a levy of between 0.8% and 1.2% compared to less than 0.6% for larger schemes. Consolidation, through bringing pension schemes together, offers the opportunity for employers to focus on their business and for trustees to secure greater security for their members.”
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