The Pensions Regulator (TPR) expects most schemes to shift their focus from deficit recovery to endgame planning, with the majority of defined benefit (DB) schemes being in surplus. Open schemes should be planning on securing their future.
TPR’s latest Annual Funding Statement (AFS) reports that just over half of schemes (54%) are in surplus on a buyout basis, rising to 76% on a low dependency basis and 85% on a technical provision basis.
TPR’s Director of Trusteeship, Administration and DB Supervision, David Walmsley, said: “With improved funding levels, three quarters of schemes are in surplus on a low dependency basis, we expect a shift in focus from repairing deficits to endgame planning. Our new DB funding code equips schemes to make these changes, and to better understand their funding strengths and risks.
“Despite healthy funding positions, trustees should keep in mind the potential for heightened trade and geopolitical uncertainty and understand any risks to their scheme’s investment strategy and employer covenant.”
The AFS contains information for trustees and employers for schemes undertaking their first valuation under the new DB funding regime. It clarifies areas surrounding covenant and trustee’s assessment of supportable risk. TPR’s new DB funding code setting out guidance and expectations on how schemes should comply with the funding and investment strategy requirements which came into force last November.
TPR has previously expressed support for government proposals regarding the use of surpluses in DB pension schemes to support economic growth and improve saver outcomes.
Mr Walmsley said: “Trustees should also be considering how they would respond to potential requests from employers to release some of their scheme’s surplus. We have published a helpful statement on this subject. They should adhere to current legislation and scheme rules regarding funding surpluses. We await details on the Government’s plans to legislate in the upcoming Pension Schemes Bill.”
“We expect around 80% of schemes to be able to meet the Fast Track approach, resulting in less TPR engagement and lower regulatory burden on schemes through simpler reporting. Trustees can also opt for the equally valid Bespoke option. We encourage trustees to collaborate early with advisers and employers to determine the most suitable approach.”
In coming weeks, TPR will launch a new ‘Submit a scheme valuation’ digital service, including a statement of strategy spreadsheet. All information for valuations with effective dates on or after 22 September 2024 must be collated and submitted by schemes using these tools.
Guidance will also be published to support trustees considering the best option for their members as they plan their scheme’s endgame.
