The Pensions Regulator has today published its 2013 annual funding statement to help pension scheme trustees and sponsoring employers to agree valuations and deficit recovery plans that protect the interests of retirement savers, whilst also being affordable for employers facing challenging economic conditions.
The regulator’s chair Michael O’Higgins said:
“I want to see pension trustees agree long-term strategies with employers that protect the interests of retirement savers, whilst also enabling viable businesses to thrive and grow. We expect them to mitigate the risks to their scheme, but this does not require them to be overly prudent.
“As our analysis shows, circumstances differ greatly between schemes. Many are in a relatively strong position and our starting point will be that schemes should consider whether to maintain present levels of deficit contributions as agreed at the last valuation. But some employers will struggle to pay that level of contributions - and may need to make use of the flexibility within the system.”
The 2013 statement makes clear that trustees can use the flexibility available in setting the discount rate to calculate future liabilities (known as ‘technical provisions’), based on the yield held by assets of the scheme and / or the yield on Government or high-quality bonds, to best fit their circumstances.
The statement encourages trustees to produce plans that take an integrated approach to managing the risks to their scheme, including funding levels, investment performance and the employer covenant.
In the last year, the regulator has engaged proactively with about 40 large schemes with 2012 valuation dates to address issues at an early stage. The regulator will continue this approach with a selection of schemes conducting 2013 valuations.
The regulator has previously indicated that it is moving away from a limited number of simple triggers such as recovery plans longer than ten years. The statement outlines how we are moving towards a broader collection of risk factors.
In the recent Budget, the Government announced that it intends to give the regulator an additional statutory objective based around employer growth, the precise wording of which will be set down in legislation.
In the autumn, the regulator will consult on revisions to its scheme funding ‘Code of Practice’ as well as on its approach to the regulation of defined benefit (DB) schemes, which will be published as a regulatory strategy early in 2014. These will reflect the new objective and set out how the regulator plans to take this into account.
View the annual funding statement and supporting analysis and evidence.
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