The Pensions Regulator (tPR) has issued a statement to employers with defined benefit (DB) pension plans, setting out its position on how the funding regime will work during the economic crisis. Most U.K. DB funds now have substantial deficits.
tPR’s statement includes the following guidelines:
- Employers potentially have the flexibility to renegotiate agreed plans to repair pension deficits when they are “under pressure”. However, “the pension recovery plan should not suffer, for example, in order to enable companies to continue paying dividends to shareholders.”
- If a new valuation (which will usually take place once every three years) reveals a “much larger deficit”, a longer recovery plan may be appropriate. The Regulator looks in more detail at recovery plans that stretch out over more than 10 years but has agreed that recovery plans of more than 20 years can be acceptable in some circumstances. However, trustees agreeing to longer recovery periods “are likely to look for alternative security, perhaps using contingent assets or other mechanisms.”
- Where companies face “more severe difficulties,” trustees “may need to review investment assumptions in their funding plans on, for example, the amount of investment risk the employer can underwrite.”