85-90% schemes undertaking 2017 valuations able to manage deficits – TPR

Written by Talya Misiri

A majority of 85 to 90 per cent of schemes that are undertaking 2017 valuations have employers that are able to manage deficits, with no long-term sustainability issues, The Pensions Regulator has found.

In its annual funding statement, aimed at trustees and employers of defined benefit schemes, TPR noted that while a majority of DB schemes are currently manageable for the long term, trustees and employers have a duty to notify the Regulator regarding circumstances that may affect the long-term security of the scheme.

“Employers must notify us as soon as reasonably practicable about employer-related events, for example a decision by an employer to cease business in the UK, or where a director becomes aware that the employer has no reasonable prospect of avoiding insolvency. Notifying us can give us the opportunity to assist or intervene,” TPR said in its funding statement.

Nonetheless, TPR noted that while its analysis found that most major asset classes have performed well, increasing scheme asset values, it has not reached a level that could compensate completely for increased liabilities. From this, a number of schemes are likely to show larger funding deficits in 2017 than predicted in their last valuation, TPR said.

Analysis also showed that there are approximately five per cent of schemes in the valuation cycle where the employer is “tending to weak, or weak and where it appears they are at risk of becoming unable to, or are already unlikely to be able to adequately support the scheme”.

Moreover, TPR advised that when setting valuation assumptions in the current economic environment, trustees are encouraged to engage in scenario planning and sensitivity analysis to understand the extent to changing market conditions could affect long-term risks and returns.

In addition, TPR noted that as a result of industry debate on setting valuation rates, trustees should seek advice from their scheme actuary on valuation assumptions.

Concluding its funding statement, TPR said it will be committed to improving identification of cases that present the biggest risks to members, intervening early before recovery plans are submitted and be clearer with its expectations of trustees and employers.

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