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The Pensions Regulator's report on scheme funding: analysis of recovery plans
Practical Law UK Legal Update 8-501-0580 (Approx. 2 pages)
The Pensions Regulator's report on scheme funding: analysis of recovery plans
by Miranda Joseph, Norton Rose LLP
| Published on 14 Dec 2009 |
This article is part of the PLC Global Finance November e-mail update for the United Kingdom.
Speedread
On 10 November 2009, the Pensions Regulator published its annual analysis of recovery plans (plans drawn up by pension scheme trustees setting out how any funding deficit in a final salary scheme will be made up). This article summarises the key findings of the report.
Background
On 10 November 2009, the Pensions Regulator published its annual analysis of recovery plans (plans drawn up by pension scheme trustees setting out how any funding deficit in a final salary scheme will be made up). The report reflects the current status of scheme funding in the UK, and also provides an overview of scheme clearance and withdrawal activity.
The report updates previous publications from 2007 and 2008, and it covers the valuation effective dates for recovery plans from 22 September 2005 (when the scheme funding regime was implemented) to 21 September 2008. The schemes are divided into three annual tranches based on the relevant valuation effective date.
The report indicates that schemes are co-operating with sponsors to provide a flexible approach to scheme funding in these challenging economic times.
Key findings
Key findings from the report include:
- There has been an increase in the discount rate spread over UK gilt yields. This increase implies a greater reliance by schemes on investment outperformance.
- There has been an increase in the use of baseline mortality assumptions, showing that trustees and employers recognise the need to make more prudent assumptions.
- Approximately 60% of submitted valuations triggered in tranche 3.
- The proportion of recovery plans that triggered solely on technical provisions was lower in tranche 3 than in tranche 2.
- The average length of recovery plans was 8.3 years for those schemes in tranche 3 (an increase from 6.1 years for those schemes in tranche 2).
- There has been an increase in back-end loading for schemes in tranche 3.
- There has been a reduction in the number of clearance applications, although the complexity of those applications has increased. The nature of applications has changed, and there are more "cessation events" and "corporate restructurings" in tranche 3, reflecting the reduction in corporate activity.
The trends in recovery plans reflect the deterioration of current market conditions, and they also demonstrate that trustees are showing more understanding of the scheme funding regime.