Trustees currently grappling with their first valuations under the new funding regulations may be curious to see the insights from this year’s Annual Funding Statement. It is important to acknowledge the transformation that many schemes will have seen over the past three years, with assets in aggregate falling by around a third and total pension scheme liabilities falling by 45% over this period.
David Hamilton, Chief Actuary at Broadstone said: “Whilst TPR warns about ongoing risks and geopolitical uncertainty, the overall message is that most schemes are now very well placed. There is talk of planning for the potential release of surplus, but also a word of warning for those considering run-on – reinforcing the ongoing risks and governance requirements that will make this unrealistic for most smaller schemes. In terms of surplus extraction, we await with interest how the government will balance their desires for productive finance investment and protection of members’ interests in the upcoming Pensions Bill.
“The key takeaway from the Annual Funding Statement is the further evidence that the long gestation period of the new funding regime meant it has arrived too late to be of benefit to most schemes. Three quarters of schemes are expected to already be in surplus on a low dependency basis and the statement acknowledges that, for instance, these schemes will only need ‘proportionate’ covenant assessment.
“Whilst proportionality is referred to on almost every other page, the volume of additional work under the new funding regime does feel excessive when the masses of guidance around affordable cash flows, reliability periods etc., are likely to apply to only a small minority. The further clarifications within this statement around some of the covenant expectations also demonstrate how one size does not fit all and highlight the potential gulf between best practice aspirations and a pragmatic, risk-based, proportionate approach.”
