The Pensions Regulator has published a detailed analysis of recovery plans submitted to it with valuation dates in the last quarter of 2005 and first quarter of 2006. Schemes putting in place a recovery plan may find it useful in helping them to decide what view the Regulator might take of their intended plan.
The report looks at how many recovery plans hit one of their triggers and, of those, how many the Regulator has had to take further action on.
By way of reminder, the triggers (set out in the Regulator's statement on scheme funding) are:
- technical provisions set at a point between FRS17/IAS19 and PPF liabilities (s179)
- recovery plan period of more than 10 years
- recovery plan excessively back-end loaded
- inappropriate investment return assumption in recovery plan.
The triggers are not targets, but are intended to filter recovery plans which may warrant further enquiry.
The key findings of the analysis include:
- average technical provisions come out close to FRS17 and above s179
- around 30% of recovery plans did not trigger
- of the 70% that triggered most needed only minimal action (e.g. requests for information or clarification)
- action was escalated in 10% of cases and regulatory intervention may be required although it is hoped most can be resolved by agreement
- over 80% of schemes produced recovery plans no longer than 10 years, the average being 7.5 years.
Most plans which trigger will require only a brief review by the Regulator. In many cases where further enquiries have been required, the employer has provided additional contributions to reduce the length of the recovery period. In some cases the Regulator has approved a recovery plan in excess of 10 years where the circumstances are appropriate.