Nearly half of tranche 15 schemes lengthen recovery plans

Almost half (45 per cent) of defined benefit (DB) schemes that submitted valuations to The Pensions Regulator (TPR) in the period up to 21 June 2022 (tranche 15) lengthened their recovery plan end dates, benchmarking analysis from Hymans Robertson has found.

This represents a 10 percentage point increase on the 35 per cent of schemes that lengthened their recovery plans the year before.

More than half (55 per cent) kept their recovery plan end dates the same or shortened them, while 21 per cent extended them by more than three years.

Hymans Robertson noted that tranche 15 schemes were the first set of submissions to be impacted by the Covid-19 pandemic and “perhaps unsurprisingly” more schemes needed to lengthen their recovery plan end dates.

However, alongside the continuing post-Covid recovery, the analysis pre-dated recent rises in gilt yields, which the consultancy said were likely to have brought “good news” for schemes with less hedging in place.

“Overall the health of schemes has been increasing and we expect this to be reflected in an improved picture in future reporting,” added Hymans Robertson partner and funding & IRM specialist, Laura McLaren.

The analysis looked at 1,713 valuations, with 73 per cent of schemes reporting a deficit.

The average recovery plan length for schemes in deficit was 6.4 years, while the median recovery plan was 5.4 years.

Thirteen per cent of schemes in deficit had a recovery plan of 10 years or more, while 50 per cent had plans of fewer than five years.

The average ratio of assets to technical provisions was 89 per cent, while for those in deficit it was 82 per cent.

“With the impact of the Covid-19 pandemic still being felt by economies, not least through the strong inflationary headwinds and ongoing certainty, it is good to see that, in general, the health of schemes is continuing to increase,” McLaren said.

“Any further rises in gilt yields could see further reductions in liability values.

“With regulatory change building for some time, we expect the new DB Funding Code to arrive before the end of the year bringing further clarity. Before this takes place there is a good opportunity to use TPR’s analysis to benchmark current funding plans against today’s best practice.

“Benchmarking offers valuable insights into where TPR might ultimately set the ‘fast track’ parameters and will help schemes identify the key actions to take on covenant, investment, and funding to prepare for going ‘fast track’ or ‘bespoke’.”

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