TPR recognises that it is operating in an economic climate far removed from the context in which it commenced operations in April 2005 and has reviewed its plans for 2009-2012 accordingly. It also recognises that the best support for any pension scheme is a viable employer.
TPR published in December 2008 its analysis of the second tranche of recovery plans submitted by defined benefit schemes with a funding deficit. This showed that, in general, recovery plan lengths had fallen, schemes were better funded and employer contributions had been growing. However, it is now clear that recent economic conditions have had a “profound impact” on schemes and TPR expects to see this reflected in both funding levels and recovery plan lengths.
TPR still believes that the current scheme funding regime is flexible enough to cope with the impact of an economic downturn and that TPR will continue to apply the inherent flexibilities in the scheme funding system. TPR reiterates that pension promises are employer commitments which have to be assessed over the long term. Tony Hobman, TPR’s chief executive and David Norgrove, its chairman, have signalled that TPR will still scrutinise any scheme recovery plan of longer than TPR’s “trigger” time period of 10 years to restore the scheme funding level. However, the reference in the Corporate Plan to TPR expecting to see economic circumstances being reflected in recovery plans, is perhaps a signal that TPR will in the future be more willing to agree to extended recovery periods than it has been in the past. This is subject to the proviso that it appears that the sponsoring employer is likely to survive the current recession, although there is no clarification yet as to how future potential solvency is to be assessed by trustees.
“We will continue to encourage open dialogue between employers and trustees. We will monitor the situation. We continue to help educate our regulated community as we explain new risks in the downturn, and we will always emphasise the long-term nature of pension promises.”
The Corporate Plan builds on the themes set out in TPR’s announcement to UK employers on 18 February 2009, as summarised in our Stop Press of the same date. In that statement TPR also stressed the flexibility of the scheme funding regime.
Comment: in an effort to relieve the financial pressure on sponsoring employers of defined benefit schemes, employers’ groups have been lobbying TPR to allow employers to extend the length of recovery plans or, alternatively, to permit them to make higher payments after the economy improves. TPR’s recognition of the difficulties faced by employers who wish to continue to offer final salary pension arrangements to their employees is welcome. However, some commentators may continue to be disappointed that TPR has not taken steps to extend its trigger point beyond 10 years.