The Pension Regulator (TPR) has published its 2013 annual funding statement to help pension scheme trustees and sponsoring employers to agree valuations and deficit recovery plans.
The aim is to help protect the interests of retirement savers while also being affordable for employers facing challenging economic conditions, the TPR said.
The statement encourages trustees to produce plans that take an integrated approach to managing the risks to their scheme, including funding levels, investment performance and the employer covenant.
TRP's statement also explains that trustees can use the flexibility available in setting the discount rate to calculate future liabilities based on the yield held by assets of the scheme and/or the yield on Government or high-quality bonds, to best fit their circumstances.
Michael O'Higgins, TPR chair, said: "I want to see pension trustees agree long-term strategies with employers that protect the interests of retirement savers, whilst also enabling viable businesses to thrive and grow. We expect them to mitigate the risks to their scheme, but this does not require them to be overly prudent.
"As our analysis shows, circumstances differ greatly between schemes. Many are in a relatively strong position and our starting point will be that schemes should consider whether to maintain present levels of deficit contributions as agreed at the last valuation. But some employers will struggle to pay that level of contributions - and may need to make use of the flexibility within the system."
The 2013 statement is relevant for trustees and employers of all defined benefit (DB) schemes, but it is primarily aimed at those who are undertaking valuations from 22 September 2012 to 21 September 2013.
TPR said it engaged with approximately 40 large schemes with 2012 valuations date to address issues at an early stage, and that it will continue this approach with a selection of schemes conducting 2013 valutations.
Joanne Segars, the National Association of Pension Funds (NAPF) chief executive, said: "The Regulator has put more emphasis on the flexibilities open to pension schemes grappling with the very low gilt yields resulting from the weak economy and quantitative easing, and that is a helpful step.
"The statement has shifted away from last year's heavy bias on basing investment return assumptions on risk-free assets and gilts, and instead recognises that pension funds are confronting some major challenges, and that a broader view is needed.
"Many businesses going through their valuations in 2013 are facing much tougher conditions than they did three years ago, so they will be encouraged by this sign of support. However, it is one thing to talk about flexibility and another to allow it to be used. The Regulator must stand by its signals."
The Government in its recent budget announced that it intends to give the regulator an additional statutory objective based around employer growth, the precise wording of which will be set down in legislation.
In autumn, TPR will consult on revisions to its scheme funding 'Code of Practice' as well as on its approach to the regulation of DB schemes, which will be published as a regulatory strategy early in 2014.
The Confederation of British Industry chief policy director Katja Hall said: "It is good to see that the Pensions Regulator has already started taking into account its new economic objective."
Hall added: "The Annual Funding Statement however is just the start. Businesses will be looking for a clear step change in the Regulator's behaviour, with the new objective reflected in every single speech, statement and the updated Code of Practice."
First published 08.05.2013
monique_simpson@wilmington.co.uk
