Around one-third of pension schemes should have a formal actuarial valuation due in 2015. With government bond yields at historic lows, employers will face further pressure in respect of additional deficit funding. We take a look at the key issues employers should consider as part of a formal valuation process.
1. Understand the new scheme funding code of practice
The Pensions Regulator’s (TPR) new Code of Practice on Funding Defined Benefits focuses on an ‘integrated risk’ approach to funding, as well as striking a balance between the needs of the scheme and reasonable affordability for the employer.
2. Start early
Preparation can avoid delays or surprises.
3. Identify your objectives
The employer should understand what it is trying to achieve in the valuation process.
4. Engage with the trustees
The employer’s interests are likely to be best served by developing a constructive relationship with the trustees.
5. Prepare for employer covenant assessment
Employers should fully engage with the review process, recognise the trustees’ obligations and understand how the information provided will be used.
6. Agree assumptions and recovery plan
There is a wide range of assumptions that can be used and these can produce very different contribution requirements.
7. Maintain an active interest in investment strategy
A scheme’s investment strategy is one of the key drivers of the ultimate cost of the scheme to its employer.
8. Consider using contingent assets
One of the bargaining tools potentially available to employers in funding negotiations is the provision of a contingent asset (for example a group/parent company guarantee or a charge over a property owned by the employer).
9. Recognise the Regulator
Recognising TPR’s requirements early in the valuation process can enable a swift conclusion to the valuation process.
10. Consider potential benefit changes
A funding valuation is the ideal time to consider any changes to the benefit structure.
For further detail, other points employers may want to consider at the same time as the valuation and case studies, please see our briefing note Actuarial Valuations in 2015 – Issues for Employers.
For more information or to discuss the issues raised in this blog, please contact Nick Griggs on 01242 538 500 or firstname.lastname@example.org
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