Valuations under the new defined benefit (DB) funding regime present a key opportunity for trustees and sponsors to reassess long-term strategy, according to LCP, which has shared a series of tips based on early experience of the framework.

With the regime now in place for 18 months, LCP said that while the changes were unlikely to materially affect contribution levels for most schemes, a well-planned and strategic approach remained critical to ensuring a smooth valuation process.

The consultancy stressed that trustees should prioritise strategy over compliance, noting that schemes were now required to set a long-term objective and regularly review their journey plans.

It added that valuations provided a natural point to step back and agree endgame targets between trustees and sponsors.

LCP also highlighted the importance of understanding requirements at the outset, particularly regarding the new 'statement of strategy' that must be submitted to The Pensions Regulator (TPR).

It noted that the document went beyond technical assumptions, requiring detailed narrative disclosures and justification of key decisions, making early preparation essential.

The firm pointed to potential simplifications within the regime, including fast track, low-risk, and small-scheme easements, encouraging schemes to assess eligibility early to reduce the scope of analysis required.

Planning and coordination were also identified as crucial, with LCP warning that integrated risk management played a greater role under the new regime.

With this in mind, it suggested that early collaboration between trustees, sponsors and advisers could help streamline the valuation process.

Covenant assessment is another central component of the new framework, with LCP urging trustees to consider covenant issues early, particularly given the need to determine the “covenant reliability period” and apply new tests such as the supportable risk and reasonable affordability tests.

The consultancy also highlighted the growing significance of the low dependency funding basis, particularly as future legislation could allow surplus sharing above this benchmark.

It stated that schemes should carefully consider how this measure is set and communicated.

In addition, LCP warned that expense reserves required under the new code could be material for some schemes, particularly smaller or more mature arrangements, and should be assessed early to avoid unexpected outcomes.

For schemes with weaker funding positions and limited sponsor support, the firm urged trustees to be transparent in their assessments, even where conclusions were challenging, as this may prompt further engagement with the regulator.

LCP partner and head of DB funding, Richard Soldan, argued that valuations under the new regime were “a real opportunity for trustees and employers to step back and agree the long-term direction for their scheme”, highlighting the broader range of strategic options now available.

LCP partner in its covenant advisory practice, Helen Abbott, added that a “pragmatic, proportionate approach is key”, noting that while some schemes would require more detailed analysis, most valuations should be manageable through effective collaboration.

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