Commenting on The Pension Regulator’s Annual Funding Statement, Patrick Bloomfield, Partner, Hymans Robertson says:

• “According to our analysis one in five (20%) FTSE 350 companies with final salary pension scheme is at risk of intervention from The Pensions Regulator (TPR)*.”
• “TPR expects strong businesses to clear deficits in less than 7 years.”
• “Businesses that can’t afford to pay off deficits quickly should cut dividends and give their scheme security.”
• “Trustees running pension schemes should shift their focus to how that scheme will be settled or run-off.”

“TPR continues to set out its stall for tougher regulation of DB pension schemes, in light of high profile corporate failures like Carillion and BHS.  This year’s annual funding statement is absolutely in line with what TPR pushes for when it intervenes in pension scheme valuations.  By segmenting businesses and schemes into categories, TPR is able to be more directive about what it expects.  This is the clearest indication of the direction of travel for the new regulation for pension scheme funding, which are expected in 2020. 

“Businesses with pension scheme valuations this year will be under considerable pressure to pay higher contributions to their pension scheme.  This will be incredibly unwelcome for those who are wrestling with tough trading conditions or Brexit related uncertainty.  If businesses are struggling, TPR will be highly likely to intervene to put the interests of pensioners ahead of investors. 

“TPR has irreconcilable objectives to support businesses’ sustainable growth and protect the PPF (the pensions lifeboat used in business failures). The government is considering whether new “consolidation” options could provide a cheaper alternative for ailing businesses.  Further details are expected later this year, following a DWP consultation. 

“This statement is unlikely to cause a major stir for trustees at the leading edge of best practice.  They will already have a long-term plan for their scheme and be shifting into investments that match pension payments more closely.  However, lots of trustees will need to up their game to catch-up.  All trustees are going to have to work harder to demonstrate to TPR that the risks they are running can be supported by the business their scheme relies on.

“TPR’s is giving investment risk much greater scrutiny, which is entirely appropriate as it has not received enough scrutiny in the past.  As TPR does not have any powers explicitly relating to pension scheme investments, it continues to have to influence through pension scheme valuations to bring.”