It is aimed at trustees and employers of defined benefit pension schemes who are undertaking their scheme valuations with effective dates in the period September 2011 to September 2012. However, it is relevant to all trustees and employers with a defined benefit pension scheme.
Trustees and employers that follow the guidance in the Statement are more likely to reach funding agreements that the regulator finds acceptable without the need for regulatory involvement. The aim of the Statement is to encourage employers and trustees to work with their advisors to begin the process of implementing the approaches to their scheme funding valuations.
Commenting on the statement, ACA Chairman, Stuart Southall commented:
“Where this statement perhaps goes somewhat further is in stressing the view that ‘any increase in the asset outperformance assumed in the discount rate to reflect perceived market conditions as an increase in the reliance on the employer’s covenant’. This may not be a conclusion accepted by all stakeholders and their advisers and this could create some tensions and difficulties.
“As a starting point the Regulator expects ‘the current level of deficit repair contributions to be maintained in real terms, unless there is a demonstrable change in the employer’s ability to meet them’. But the attaching caveat that this ‘of course assumes that the current contributions were properly set’ must, in the ACA’s view, be limited to what we hope are a very small number of ‘unresolved’ cases. No one expects a re-visiting of previously agreed and accepted recovery plans based on 20/20 hindsight.
“The ACA welcomes the confirmations of what the regulated can expect from the Regulator, although the undertakings stop short of promising consistency of approach or completion of reviews within commercially sensitive timescales.
“The flip side of the acknowledgement that the use of cash in a business might improve the employer’s covenant is surely that an ‘unresolved’ pension funding situation might damage the covenant, particularly for high profile quoted businesses. Reducing and ideally removing delay or uncertainty in resolving funding situations is just as important and this is an area the Regulator needs to address,” noted Southall.
The ACA says that it hopes the promised market segmentation and pro-activity outlined in the statement might reduce the number of cases which drag on too long, even during the current difficult conditions, and that there will be no material increase in the Pensions Regulator second guessing, or undermining, perfectly proficient advisers, trustees and sponsors who have carefully observed due process.
