Schemes ‘have work to do’ in defining long-term funding targets

Pensions trustees and sponsors “have work to do” in defining their long-term funding targets, as set out in The Pensions Regulator’s (TPR) latest Annual Funding Statement.

Aon has said that the “majority” of schemes still need to make progress before they meet TPR’s new guidelines.

In its most recent Annual Funding Statement, TPR said that it now expected UK pensions schemes to have a clear focus on long-term funding targets and that, as schemes mature, they should be put on a de-risking journey.

For schemes to use TPR’s examples in its guidelines, they need to assess the maturity of their scheme.

The regulator has said that more mature schemes should be thinking harder about the long-term destination for their scheme, and that it will be taking a tougher approach on non-compliant schemes.

In a recent webinar, Aon polled participants on what stage of maturity their scheme was at, from ‘very mature’ to ‘very immature’.

It found that around 61 per cent of respondents had a ‘mature’ scheme, categorised as typically schemes closed to new members, with pensioner liabilities between 50 per cent and 75 per cent, and the duration of liabilities between 14 and 19 years.

Twenty-nine per cent said that their scheme was ‘immature’, typically closed to new members, with pensioner liabilities between 25 per cent and 50 per cent, and duration of liabilities is between 19 and 24 years.

Aon partner, Lynda Whitney, commented: “Each scheme should set its own range for when they want to reach their long-term funding target.

"For the very mature category, we believe the regulator would like those schemes to already be at their destinations but accept that many cannot immediately achieve this.

"For less mature schemes there may still be a justifiable expectation of reaching the long-term target very quickly if the employer’s covenant or other scheme-specific circumstances justify it. Generally though, a more gradual approach will be more appropriate."

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