The UK’s Pensions Regulator has today (27 April 2012) published the first of its planned annual statements on defined benefit scheme funding. The statement is aimed at trustees and employers of schemes with effective valuation dates between September 2011 and September 2012. Terry Saeedi, partner at international law firm Eversheds, comments…
“As expected the 2012 statement contains no surprises – the Regulator’s primary functions are to apply a flexible funding regime to protect pensions and the PPF. Indeed the thrust of the 2012 statement is very much in line with the earlier statements in 2008 and 2009.
“It will be interesting to see how trustees and employers react to the statement in practice. The Regulator indicates that trustees might allow for changes in gilt yields in recovery plans, provided that they can also show (and document) some contingency planning in the event that current market conditions persist. This may lead to trustees seeking a more dynamic link between contributions and scheme experience and business performance.
“At the same time, the Regulator’s message on cash from employers is much as usual – trustees should be extracting “what is reasonably affordable without compromising the employer’s long term ability to support the scheme”. Put another way, maintaining shareholder value is not a priority when the real value of deficit contributions should be maintained and this must adversely impact on inward investment.
“We understand that the Regulator will be reviewing the funding code of practice and regulatory guidance later this year. It remains to be seen how much substantive change will be made to those documents in practice.”