TPR Annual funding statement: Two out of three ain’t bad

Hugh Nolan

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Spence and Partners welcomes the Annual funding statement issued by The Pensions Regulator.  Of the three key outcomes, Spence is broadly supportive of the TPR’s position on two, but disagrees with the view on mortality projections.

Hugh Nolan, Director at Spence, commented: “The Regulator has quite rightly highlighted a concern that many schemes fail to submit their scheme valuation by the statutory deadline, despite having 15 months after the effective date to do so.  Modern technology gives trustees the opportunity to get their first results from the Scheme Actuary far faster than is usually the case, as well as modelling alternative assumptions quickly and cheaply.  If the actuarial figures are available promptly, trustees and employers can start their negotiations sooner and avoid unnecessary time pressure leading to extra costs and rushed decisions.  As we’ve seen in the last few days with BHS, schemes that fail to submit their valuation on time leave themselves open to criticism, irrespective of any mitigating factors.

Nolan went on to say: “The Regulator’s detailed and helpful analysis recognises that schemes are facing even more challenging deficits than expected.  Many deficits will be higher now than at the last valuation, even though employers have been pumping money in.  Fortunately corporate profits seem to be rising generally so many employers will be able to increase contributions where needed.  Sadly though, not all scheme sponsors are enjoying the same increase in their profit level and it is the trustees of those schemes that will particularly need the right advice to get the right outcome.

“The one area where our view differs from the Regulator is the use of the latest mortality projections.  The Regulator’s statement seems somewhat reluctant in acknowledging that it is reasonable for trustees to update to CMI2015.  Obviously the key requirement for trustees is to fund prudently and we can understand the Regulator being slightly nervous about this reduction in liability values.  However, reckless conservatism can be dangerous.  It seems only fair that we should take account of the latest information available when it suggests we might be over-reserving, since we would certainly do so if the evidence pointed the other way.”

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