TPR cautions schemes to consider consequences of Covid-19 mortality projections

The Pensions Regulator (TPR) has warned that schemes planning to reduce technical provisions to reflect Covid-19 mortality projections should think about the consequences "if these things don’t play out in practice".

Speaking with LCP partner, Steven Taylor, TPR executive director of regulatory policy, analysis and advice, David Fairs, also cautioned that it is still “early days” when it comes to understanding the long-term impact of the pandemic on life expectancy assumptions.

He stated that there was a wide variation in the market’s predictions surrounding mortality assumptions, with TPR set to give more information on this topic in its upcoming Annual Funding Statement.

The duo also discussed scheme’s funding levels having generally recovered well from the pandemic following good investment performances and the potential impact that the government’s withdrawal of Covid-19 support could have on sponsor covenants

TPR’s review of the feedback from its consultation on the revised code of practice for defined benefit scheme funding was also discussed, with the regulator saying it was "looking carefully" at the fast-track valuation parameters ahead of publishing an impact assessment.

Additionally, Fairs stated that the regulator had seen indications of “broader interest” in using collective defined contribution (CDC) schemes, despite regulations still having some way to go.

LCP partner, Steven Taylor, commented: “It’s welcome news that the TPR will be providing more information on longevity assumptions which will be of interest both to trustees in upcoming funding valuations and also to sponsors as they consider the life expectancy assumptions used in their financial statements.

“The regulator expects schemes to take care when updating these assumptions in light of Covid-19 in case experience turn out differently and so this area has potential to be another driver of contingent funding mechanism in upcoming valuations.

“It’s encouraging that we can expect to see further developments during the year for superfunds and also in the CDC scheme space. It will also be a relief to hear there will be an impact assessment on the proposed new fast-track regime and it will be fascinating to see how TPR’s perspective has evolved since its first consultation last year.”

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