The Pension Regulator published its annual funding statement on 22 May, setting out its analysis of current market conditions and funding plans for employers and trustees of defined benefit schemes with valuation dates between 22 September 2014 and 21 September 2015.

The Regulator is predicting hard times ahead and larger scheme deficits for valuations carried out in this period. This is largely due to falling interest rates and market expectations that rates will stay lower for longer periods. The Regulator confirms that prolonged low rates will have a deep impact on funding strategies.

Schemes which can take additional risks in their funding strategies may choose to make changes such as to increase their recovery plans and change the assumptions underlying investment returns. Schemes with less capacity to take additional risk may have to look for higher pension contributions to maintain the same recovery plan end date.

This will not be good news for scheme sponsors who will see their deficits rising. We expect this might spark more employer-led de-risking strategies.