Proportion of pension schemes increasing recovery plan lengths falls to 32% in 2019

Less than a third (32 per cent) of pension schemes increased the length of their recovery plans in 2019, compared to half (50 per cent) of schemes in 2018, according to analysis by Hymans Robertson.

The pensions consultancy said its analysis of The Pensions Regulator’s (TPR) scheme funding analysis reflected the fact that schemes had been in better shape in 2019, although it warned that 2020 was likely to see more schemes lengthening end dates again as companies continue to struggle with the fallout from Covid-19.

The analysis found that around one in six (17 per cent) schemes extended their recovery plan end-date by up to three years in 2019, while 15 per cent extended their recovery plan end-date by more than three years.

Consequently, the average and median recovery plan lengths for tranche 13 schemes in deficit stood at 6.1 and 5.2 years respectively.

Almost two-thirds (63 per cent) of schemes were in deficit in 2019, while the average funding level on a technical provisions basis was 93.4 per cent, with this falling to 84.1 per cent for schemes in deficit.

On average, technical provisions were 74 per cent of buyout liabilities.

Three-quarters (75 per cent) of schemes in the strongest covenant group, dubbed covenant group 1, had recovery plans of less than 6.7 years, while the same proportion of schemes in covenant group 4 had recovery plans of up to around 12.2 years.

Hymans Robertson partner, Laura McLaren, said: “Our analysis shows an improving picture for this latest tranche of TPR scheme valuation submissions. However, it is important to note that it does not capture the effects that the recent Covid-19 pandemic will have had on scheme funding.

“2020 valuations will inevitably be challenging for many schemes. With some companies and industries being hit harder than others, sponsor covenant and affordability will be particularly key. More variation is likely to be seen across the range of funding plans reported at subsequent dates.”

She added that, considering the fact that the defined benefit funding regime was under review, “this data offers valuable insight into where TPR might ultimately set the parameters within the framework”.

McLaren concluded: “With the first consultation drawing to a close, trustees and sponsors should be watching for more information on the exact form TPR’s new framework will take and testing how their funding plans will measure up.

“Developing a robust long-term funding plan will be a key requirement for schemes, and one that will require careful thought in the context of the turmoil caused by Covid-19. We’d encourage schemes to start preparing now.”

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