The Pensions Regulator has set out its analysis of the market in its 2015 annual funding statement.

The statement said that it is possible for pension schemes to agree appropriate funding plans that protect members' benefits without undermining the sustainable growth of the employer.

Stephen Soper, executive director for DB at The Pensions Regulator, said: "Our annual funding statement should give confidence to employers, that supporting DB schemes is not a barrier to investing in their business.'

He went on to say that, for trustees, taking an integrated and proportionate approach to managing risks can help a scheme improve its own situation over the longer term.

The statement acknowledges that many schemes are likely to experience larger deficits than at their last triennial valuation due to changing market conditions.

Schemes with capacity to take additional risks should be able to address higher deficits through appropriate changes to their funding, while schemes with less capacity to take risk should seek higher contributions with a view to maintaining the same recovery plan end date, it said.

The statement also said that although the strong performance of all asset classes during improved economic conditions have benefited pension funds, persistent low interest rates and falling gilt yields mean that it remains a very challenging environment for DB schemes with 2015 valuation dates.

However, scheme trustees that have followed the DB code and have assessed their options with their employer should be in a better position to cope with these changes in market conditions.

"The DB funding regime is designed to be sufficiently flexible to enable trustees and employers to agree funding strategies which meet the scheme's funding requirements without compromising the ability of the employer to invest in their business and support the scheme in the long term," said Stephen Soper.

The National Association of Pension Funds (NAPF) welcomed the statement, calling it an 'important reminder' of some of the key messages from the DB funding code.

Helen Forrest, DB policy lead at the NAPF, said: "This year's concise funding statement reiterates the need for scheme trustees to manage, rather than eliminate, risk and to maintain a clear view of the sustainability of the growth of a sponsoring employer in order to secure the long-term health of the scheme.

"The statement also provides a useful commentary on the prevailing economic environment and the impact of this on schemes' funding in general," she said.

First published 28.05.2015

Lindsay.sharman@wilmingtonplc.com