Atkin trustees, actuaries, consultants & administrators

Funding: adapting to the new challenges

The Pensions Regulator has published a code of practice to help trustees and sponsoring employers of ‘final salary’ pension schemes to come to agreement on funding plans that will provide security for scheme members whilst still enabling employers to invest in sustainable growth.

The emphasis is very much on an integrated approach to covenant review, investment strategy and funding. Trustees and sponsoring employers must monitor each area and be aware of how changes in one area will have an impact on the others. For example, if the covenant weakens, does the investment strategy remain appropriate and will this affect the pace or amount of funding required. The code notes that it is not possible (or even desirable in some cases) to eliminate all risks faced by a final salary pension scheme. However, Trustees must be able to identify the risks the scheme faces and have appropriate contingency plans in place should the risks change.

The funding code of practice recognises that a strong ongoing employer alongside an appropriate funding plan provides the best support for a well-governed scheme. The code urges trustees and employers to work in a collaborative and transparent way.

Using our market-leading actuarial software, we are able to assist both trustees and sponsors through potentially difficult negotiations on a funding plan so that the level of contributions made to the scheme can be agreed to the satisfaction of all parties, and within a reasonable timescale. We understand that our clients have issues other than pensions on their agenda and by providing straight-forward advice and support, we can minimise the need for protracted discussions and potential scrutiny by the Regulator.

Our online software enables us to help Trustees and employers alike to identify the major risks their schemes are subject to and to highlight the impact that a change in covenant, investment strategy or market conditions could have. This can all be done live at a Trustee meeting.

We will provide clients with innovative solutions to their funding problems in a cost-effective way recognising that the scheme sponsor can provide appropriate funding security in many ways and not just by paying higher levels of cash contributions. We will also provide ongoing support and monitoring to check that scheme funding is going to plan and identify any potential issues as early as possible.

As part of the valuation process, we work with trustees and sponsors to ensure that the investment strategy remains appropriate given the funding level and the maturity of the scheme noting that appropriate timing will be crucial with any decision to transition a scheme’s assets. We will discuss with trustees and sponsors the short and long-term options for de-risking in the scheme as the scheme matures and the level of funding improves.

By pulling together all the strands, we can help you to ensure that both the company and the scheme have a secure footing both now and into the future.

On a personal note, I would like to thank you for your professional yet friendly approach. Always astute and never stuffy, however busy you undoubtedly get. Your innovative nature is an added bonus; Scheme Hub is excellent. I enjoy working with you and when you consider our interaction concerns pensions, that is saying something!

Lee, Administration and Actuarial client