Trustees and employers should be agreeing a clear strategy for achieving their long term goals, recognising how the balance between investment risk, contributions and covenant support may change over time, particularly as schemes become more mature and potentially better funded.
TPR’s expectations are outlined in its latest AFS, which clarifies how it expects trustees and employers to fund a scheme. It is particularly relevant to schemes conducting valuations with effective dates between 22 September 2018 and 21 September 2019 (Tranche 14).
TPR knows that successfully run schemes often have a long term strategy agreed by trustees and employers that includes a long term funding target. This target is the level of funding the scheme will need to achieve in order to reduce its dependence on the employer and particularly when it has reached an appropriate level of maturity. This will then allow it to be managed with a high degree of resilience to investment risks.
A comprehensive approach to Integrated Risk Management (IRM) should allow schemes to ensure they only take an appropriate level of risk with investments. Trustees should be mindful of the additional deficit that could arise from their chosen investment strategy and whether their covenant could support it. For the first time, and following feedback from trustees and advisers, the AFS includes our expectations on investment strategies.
Since the majority of schemes are closed to new members, TPR expects scheme maturity issues to assume greater significance for setting funding and investment strategies in the future.
David Fairs, TPR’s Executive Director of Regulatory Policy, Analysis and Advice said: “In order to support schemes we are setting out what we expect trustees and sponsoring employers to consider on funding, investment and covenant. The AFS will help them think about the risks facing their scheme, to consider what levels of risk are acceptable and how to mitigate risks where appropriate.
“Trustees have fed back to us that they find this clarity helpful in negotiating good outcomes for members and avoiding interventions and action from TPR.
“We have taken a tough stance on schemes that have not been treated fairly and will continue this approach where members’ benefits are under pressure.”
As part of its new regulatory approach, TPR is contacting many more schemes before triennial valuations are submitted to identify potential risks which could impact on members. Areas that will be looked at include equitable treatment of members and long recovery plans.
TPRs Annual Funding Statement
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