The Pensions Regulator has issued another statement on scheme funding, further to its statements in October 2008, February 2009 and April 2009.
The new statement, Scheme funding and the employer covenant: Prudence, affordability, applying flexibility through the economic cycle, is accompanied by some case studies.
The statement reminds trustees of the type of questions they should be asking themselves in assessing the employer covenant and emphasises the importance of prudent funding levels and reiterates the flexibility of the funding regime generally and recovery plans in particular. The Regulator sets out its approach to scheme funding valuations and the importance of the employer covenant through the economic downturn. Key issues include:
- At the current time, FRS17 is unlikely to represent an adequate level of prudence without further adjustment.
- Any risk margin in the assumptions for setting technical provisions must take account of the extent to which the employer covenant can support them.
- Technical provisions should not be compromised to make a recovery plan appear affordable; the size of the deficit does not necessarily dictate annual deficit repair contributions to the pension scheme; these must be determined with reference to what the employer can reasonably afford.