The Pensions Regulator has issued a statement on scheme funding to trustees of defined benefit schemes with price-regulated sponsors, eg in those industries providing monopoly infrastructure services. The Regulator has also issued Q&As that elaborate on this statement.
The Regulator comments that it is providing this information because a number of economic regulators have published proposals on the extent to which pension costs may be included in the prices that are charged to consumers.
The Regulator states that it “would like to make clear to trustees of defined benefit (DB) schemes with regulated sponsors that the period assumed by economic regulators for firms to recoup pension costs from consumers is subject to very different considerations to the speed at which they should expect sponsors to fill pension deficits.”
In considering the degree to which the employer can reasonably afford to pay contributions towards repairing the pension scheme deficit, the Regulator expects these trustees to have regard to:
- “the trustees’ assessment of the strength of covenant of an employer”;
- “the employer’s overall financial circumstances”; and
- “whether and how price reviews, or any other regulatory constraint, impacts on the employer’s ability to eliminate any deficit”.
The Regulator also expects such trustees to justify any departure from the recovery plan length previously agreed with the employer. It also reminds trustees of what, in its view, is generally expected of them (eg “their primary duty is to ensure they achieve appropriate levels of security to underpin the benefits of the members of the scheme”).
The Regulator also states that trustees should “adopt the same commercial approach to regulated employers as to any other entity”.