Atkin trustees, actuaries, consultants & administrators

TPR Annual Funding Statement 2019

Although aimed at DB schemes carrying out valuations with effective dates in the year to 21 September 2019, it gives a useful indication of the direction of travel ahead of the new regulations for pension scheme funding which are expected in 2020.  It recommends that Schemes should be;

- Adopting a Long Term Funding Target and be able to show evidence that their shorter-term funding strategies are aligned with it;

- Agreeing recovery plans which are no longer than 7 years when there is a strong covenant;

- Ensuring that they are treated fairly alongside the sponsoring employer’s shareholders;

- Allowing for specific risks and actions based on a template of differing scheme and employer characteristics; and

- Considering the maturity of the scheme and its impact on the level of underfunding, the benefits paid out and the ability to close the funding gap from employer contributions and investment returns.

Trustees and Employers with pension scheme valuations this year will have the unenviable task of attempting to balance the TPR drive for higher contributions at a time where cashflows may be under pressure from tough trading conditions and/or Brexit related uncertainty.  If businesses are struggling, TPR has shown that is it willing to intervene to put the interests of the pension scheme ahead of investors. 

For smaller schemes, we are seeing more examples of the Pensions Regulator engaging early in the valuation process, sending Trustees letters setting out the areas they believe that they should be focusing on and asking that they complete a questionnaire as part of the process.  We are also seeing more interest from TPR once valuations have been submitted.  For those schemes that are already under pressure financially, ensuring that they are able to address the TPR concerns and provide the best end result for their members in a cost effective way will require a thorough understanding of what is required, a knowledge of how the TPR works and, potentially, a bit of lateral thinking.

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