Commenting, Calum Cooper, Partner at Hymans Robertson, said: “There will be a sigh of relief in the corridors of companies sponsoring DB schemes. If a solvency-based regime had been implemented it would have added around £400bn to balance sheets across the UK.
“The threat of a new system for funding pensions, based on Solvency II recently implemented for the insurance industry, has been lingering for some time. Using a risk-free discount rate to calculate liabilities would have increased deficits considerably. This would have thrown funding strategies into disarray.
“While essentially this is all a matter of reporting, deficits are a persistent reality for many DB schemes and they tend to be more prone to volatility than they need to be. This causes issues for sponsors as they can’t always be certain about how much cash they’ll need to contribute to shore up schemes, and it puts the security of pensions promised to workers at risk.
“The experience of the last 15 years shows us that DB pension schemes need to become more resilient to risk. Despite companies paying £500bn into pensions schemes since 2000, the deficit for the combined FTSE 350 schemes has almost tripled to £900bn.
“There are three key actions schemes need to take to become more resilient to risk. First, have a clear, measurable strategy. Second, remember there is no urgency to be fully funded. Making a conscious decision not to try and get to the end point as quickly as possible is one of the simplest ways to reduce risks. Setting longer timeframes ultimately saves money. And finally, make sure you have accurate, up to date data so that you can make better decisions, take advantage of opportunities to de-risk, rather than hoping for the best.”
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