Pensions - Articles - Willis Towers Watson comment on tPR's DB funding statement

 Commenting on the statement and accompanying analysis, Graham McLean, a senior consultant at Willis Towers Watson, said: “The Regulator says it ‘may be affordable’ for the majority of employers to clear shortfalls according to previously agreed timetables. In about half of cases, annual payments would need to at least double for that to be achieved. Even recognising that increases at the lower end of the range are most likely to be affordable, the Regulator appears to want some big contribution rises to be up for discussion.* “The contributions required will vary a lot between employers, and so will the affordability of these contributions. Many firms may want to argue that their circumstances make them the exception to the rule, and the Regulator has in any case stopped short of saying that most employers will be able to increase contributions enough to avoid any lengthening of recovery periods.

 “Nonetheless, the suggestion that many employers should potentially double their annual payments towards clearing pension deficits marks a change in tone from the Regulator.

 “When schemes facing new actuarial valuations last went through this process in 2013, the Treasury had recently announced that it was ‘taking action to shift the balance of regulation in favour of private sector investment and growth,’** and that the Regulator would be given a new objective to reflect this. The Regulator followed this up by saying that ‘as a starting point, trustees should consider whether the current level of contributions can be maintained.’*** Considering whether contributions can rise enough to put the existing recovery plan back on track is a very different place to start.

 “Funding pension schemes involves walking a tightrope: trustees want deficits to be dealt with as quickly as possible but without undermining the businesses that they will rely on in future. Employers have recently been given more flexibility; the regulatory pendulum may now be swinging back the other way.”