The Pensions Regulator has published its second annual funding statement, aimed at trustees and employers who are undertaking valuations with effective dates between 22 September 2012 and 21 September 2013. The Regulator acknowledges that trustees may need to make greater use of the flexibilities available within the funding regime than in previous years. It 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.

Where trustees make use of any of the flexibilities allowed within the funding regime and weaken assumptions or reduce employer contributions, they should document the reasons for doing so.

The Regulator also says a “strong and ongoing employer alongside an appropriate funding plan is the best support for a scheme. Where there is tension between the need for scheme contributions and for investment in the employer’s business, it is important that the solution found neither damages the employer’s covenant nor benefits other stakeholders at the expense of the scheme. If investment in the business is being prioritised at the expense of what otherwise would have been affordable contributions, it is important that it is being used to improve the employer’s covenant”.

The Regulator is moving away from triggers focused on individual items (e.g. recovery plans more than 10 years long) and will now consider factors such as:

  • whether recovery plan contributions and the amount of investment risk appropriately reflects the relative strength of the employer and also the affordability of contributions
  • any specific issues and concerns relating to deterioration in sponsor covenant strength or possible avoidance
  • the shape of recovery plans including initial low levels of contributions
  • the investment performance assumed over the life of the recovery plan and
  • any significant issues that the Regulator had with previous valuation submissions.

To view the statement click here.