TPR publishes evidence on DB pension funding regime

The Pensions Regulator (TPR) has published evidence of how some of the flexibilities in the defined benefit (DB) pension-funding regime have been used by pension schemes and employers.

In producing its DB scheme funding statement Pension scheme funding in the current economic environment earlier in 2012, TPR considered how best to achieve the right balance in regulating appropriate funding, in particular, giving due account to affordability for employers.

Starting with the assumption that employers would wish to maintain the level of contributions already committed to recovery plans, TPR analysed what impact this would have on them and whether they would need to make use of the flexibilities available in the DB funding regime.

Based upon this, TPR concluded that:

  • 25% of schemes would not need to amend their recovery plans.
  • 30% of schemes would remain on track to meet their long-term liabilities with a three-year extension to their existing recovery plan and 10% increase in contributions.
  • 20% of schemes could remain on track with a three-year extension to their existing recovery plan, a 10% increase in contributions and making use of further flexibilities in the funding regime, such as allowing for greater investment outperformance in their recovery plan.
  • 25% of schemes would need to make maximum use of the flexibilities available in the funding framework because of the affordability challenges for their sponsoring employers.

Stephen Soper, executive director of DB regulation at TPR, said: “Pension liabilities pose a significant challenge for pension trustees and employers in the current economic climate.

“Most schemes will be able to continue with previously agreed plans, or will need to make only slight adjustments, but others will find it extremely tough and will need to make maximum use of the flexibility the system affords.

“We’re working proactively with schemes to understand how we find a way through these difficult cases. We believe that the right balance is being struck, in our approach to the DB funding regime, between protecting retirement savers, protecting the [Pension Protection Fund] and maintaining employer viability.”