TPR's 2013 funding statement – use the tools at your disposal

Dissecting The Pensions Regulator's latest funding statement, and encouraging trustees to use the tools at their disposal in my latest blog for Pensions Funds Online - Now that the nonsense of 'smoothed' discount rates has rightly been consigned to Actuarial Room 101, trustees and advisers are turning to face the challenges of funding valuations in the current difficult economic environment. Deficits are up (yes, I know markets are up, but liabilities have generally gone up faster) and employers' cash reserves are probably down. So what do we do now? Well, the Government's response has been to announce that it will give TPR an objective to "support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer" – the so called 'growth objective'. Unfortunately, none of us, including the Regulator itself, knows what this means yet. While we wait for clarity (I suspect this might take a while), the Regulator has recently published its 2013 annual funding statement. In my view, the Regulator's statement is welcome and clarifies its views on a number of points. It also begs the question – if you were not doing some of this already, why not? The word flexibility appears a lot – they even add it again in the summaries at the side of some of the pages in case you've missed it the first time. Trustees have "flexibility in setting the discount rate for technical provisions and the investment return assumptions for recovery plans" – surely this can't be news? "A strong and ongoing employer alongside an appropriate funding plan is the best support for a scheme" – a first class truism, but by its inclusion there is a suggestion that some involved in funding process need telling. A lot of commentary on the statement has focussed on the abolition of the "trigger points" on the level of technical provisions and the length of the recovery period. Everyone (including the Regulator) knows that FRS 17 is a poor comparison for the level of technical provisions, so no surprise that's been binned. As for the 10 year recovery plan, the Regulator's previous communications had already stressed that this was not a cliff edge anyway. So, for me it's a pretty simple message to all parties – use your judgement, use the tools at your disposal and ask your advisors to advise (and not hide behind what the Regulator might say). And, if the 2013 funding statement encourages a shift to more reasonable discussions on valuations, then that is a good thing. Pension Funds Online