The 2020 Annual Funding Statement (AFS) from The Pensions Regulator (TPR) was published today (Thursday, 30 April) and is particularly relevant to schemes with valuation dates between 22 September 2019 and 21 September 2020 (so-called Tranche 15, or T15 valuations), as well as schemes undergoing significant changes that require a review of their funding and risk strategies.
The AFS sets out specific guidance on how to approach the valuation under current conditions, what TPR expect from trustees and employers, and what they can expect from TPR. TPR appreciate these are very “challenging times”. However, they expect all T15 valuations to fully incorporate the principles in the current DB code of practice and associated guidance.
The messaging builds on TPR’s Covid-19 guidance, repeating it in parts. The overarching theme is that, more than ever, trustees and employers need to work collaboratively.
The AFS contains some practical guidance on some scheme specific issues:
- post valuation experience
- changing valuation effective date
- calculating technical provisions
- recovery plan length
- treatment of shareholders
As with the 2019 Statement, the 2020 AFS includes a helpful table setting out key risks and actions for employers and trustees.
We welcome the publication of the latest AFS which, understandably was issued a bit later than in previous years.
Whilst, for many pension schemes, there is understandably considerable focus on the short term, the longer term and, in particular, getting back on course to longer-term objectives, remains key. Many of the aspects previously outlined in TPR’s scheme funding consultation, such as the increasing importance on the role scheme maturity has to play and the “Fast Track and Bespoke” approaches, are still expected to come into force (albeit some of the parameters may necessarily have to change to allow for different market conditions).
In the meantime, TPR continue to expect trustees to focus on the integrated management of three broad areas of risk: the ability of the employer to support the scheme, the investment risks, and the scheme’s funding plans.