The Pensions Regulator has issued a statement to sponsoring employers of DB schemes. This is a follow-up to the statement on market conditions issued to trustees on 24 October 2008 (see Pensions Update, November 2008).
The Regulator considers that the current scheme funding regime is sufficiently flexible to cope with the impact of the economic downturn and that its practice reflects current conditions. The current 10-year trigger for recovery plans will be retained. If an employer believes an existing recovery plan is jeopardising the company it should discuss this with the trustees.
The Regulator's view is that there is no reason why a pension scheme deficit should push an otherwise viable employer into insolvency. There is potential to renegotiate recovery plans, but these should not suffer, for example, in order to enable companies to continue paying dividends to shareholders. Trustees should be in a position to understand what the sponsor can reasonably afford. All unsecured creditors (including the pension scheme) should be treated equitably.
In determining what is reasonably affordable the employer and trustees must distinguish between the temporary impacts of the economic cycle on cashflow and longer term structural changes. Where there are short-term concerns then back-end loading of the recovery plan may be appropriate. Where there are more severe difficulties the trustees may need to reconsider their investment assumptions, lengthen the recovery plan (after a new valuation) and/or consider contingent assets. Employers and trustees are encouraged to talk to the Regulator if they have concerns. Any changes to the recovery plan must be reported to the Regulator.