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The Growth Plan (the Plan) is a large multi-employer pension arrangement aimed at employers in the Charity and not-for-profit sector.
The Plan includes various sections, or ‘Series’, three of which operate on a DB basis. This means that regular valuations are needed to consider the extent to which the assets of the Plan are expected to be sufficient to pay the pensions built up and, if they are not, the additional contributions that must be paid by employers who are still participating in the Plan as a consequence. The last valuation of the Plan was carried out as at 30 September 2014 and revealed a deficit of £176.5m. Additional contributions are currently being paid to address the deficit in relation to benefits in Series 1 and Series 2 of the Plan. However, a new valuation of the Plan as at 30 September 2017 is currently underway, and the contributions will be reviewed as part of this.
Alongside the valuation work, a new Employer Committee has been established with effect from 1 October 2017, which represents employers in the Plan.
The responsibilities of the Employer Committee include consulting with TPT Retirement Solutions (TPT) on the valuation assumptions, the future funding strategy and the resulting contribution requirements. This process is currently underway, and TPT are providing updates when they are available (also keep an eye on their website: www.tpt.org.uk).
We spoke to Mark Golley, Employer Relationship Manager, at TPT to get the latest news on the 2017 valuation including the initial results:
The Plan’s funding level and deficit has seen a notable improvement since the 2014 valuation, with the deficit reducing from £176.5m to £131.5m over the valuation period. Currently, the funding level stands at 86%. For context, the 2014 valuation projected a deficit of £143m and a funding level of 84% by September 2017, so we are ahead of expectations. This good news has allowed the Trustee to bring the recovery plan end date forward by eight months (to 31 January 2025) and keep the annual deficit contributions at the same aggregate level of around £11m per year from April 2019, to minimise any change for employers.
Fewer employers have withdrawn over the valuation period and many of those withdrawing have been smaller employers. These withdrawals have contributed towards the improved funding level as the employers have paid their debt on withdrawal which is higher than their share of the valuation shortfall. In addition, even though the Plan has been faced with falling long-term interest rates, the Plan’s liability hedging strategy has helped to keep the funding moving in the right direction and both the Trustee and the Employer Committee (EC) are very pleased with the progress made since the 2014 valuation.
The change is mainly due to a few factors. Employers’ continued payment of their deficit contributions and employer debts that have been paid over the period have exceeded the corresponding increase in liabilities and this has contributed to the improved position. Since the introduction of pension freedoms in 2015, we’ve also seen that membership movements such as transfers out and members taking cash at retirement have been higher than expected. In addition, inflation has been lower than expected over the valuation period. All of these have helped to reduce the Plan’s liabilities.
These positive changes have been partially offset by a decrease in long-term interest rates over the valuation period, which has reduced expectations for future investment returns and increased the value of the Plan’s liabilities.
As the Plan is a multi-employer scheme where the deficit contributions are allocated according to an employer’s share of liabilities, there will always be changes in the share of contributions across the employer group as each employer’s share of liabilities varies over the lifecycle of the Plan. Although the aggregate level of deficit contributions due from 1 April 2019 will not change, there is a split between employers seeing a decrease or an increase in their deficit contributions. Employers have been provided with an explanation and further analysis on this in an email issued in July. Approximately 330 employers will see a decrease in their deficit contributions, whilst around 415 employers will see an increase. The total reallocation of deficit contributions amongst the employers is around £500,000 per year.
Where employers have an increase, the vast majority will see an increase of up to £999 per year, or about 6% on average. There are a few employers who are exposed to larger increases in the amount payable under the new recovery plan, compared to the current contributions. Each employer’s share of the overall liability, and therefore cost, is affected by factors such as the average age of the employer’s membership compared to the average age of the Plan, member movements such as transfers out and deaths, apportionments from other employers and changes in the underlying member data and employment histories for members.
Where these items change over the valuation period, the share of liability also changes and this will mean that the amount of deficit contributions that each employer picks up will change as well.
The Trustee has instructed the Plan Actuary to prepare the final documentation so that the valuation can be finalised, signed by the Trustee and submitted to The Pensions Regulator in advance of the deadline of 30 December 2018.
The Trustee will continue to work with the EC to discuss the long-term funding and investment strategy for the Plan, and the Trustee and EC will continue to keep employers up to date on news in this area.
Employers can attend a full meeting of the EC with prior permission, and are able to contact the EC via its chair (contact details can be provided on request). For those that want to become more involved for the longer term, nominations for members of the EC take place in January every year and interested parties should contact TPT for full details. There are currently three vacancies on the EC and new nominations are always very welcome.
If you would like some further information or to discuss the Plan in more detail, please get in touch with the Employer Relationship Team at TPT by calling 0845 123 6614 or by emailing email@example.com.
I would like to thank Mark for his time and effort in preparing responses to our questions and his willingness to support this article.
There continues to be options for employers in the Growth Plan who are thinking of exiting the arrangement, in particular for those employers with Series 3 benefits. If you would like further advice and assistance regarding the potential implications of the Plan valuation, or to discuss the Plan more generally, we would be happy to help.