24 Oct 2022: Argyll's Leeds team hires new Analyst

4 May 2021: Argyll opens Leeds office

17 Jun 2020: TPR updates Contribution Deferral guidance

5 Aug 2019: TPR's tougher stance on recovery plans

7 Mar 2019: TPR’s Annual Funding Statement a game-changer

7 Dec 2018: DWP publishes superfund consultation

26 Jun 2017: TPR agrees settlement with Coats

30 Apr 2017: PM promises TPR M&A powers

28 Feb 2017: TPR agrees settlement with Sir Philip Green

9 Nov 2016: Brexit so far

8 Nov 2016: BHS ripple effect

2 Nov 2016: Sir Philip Green sent warning notice

1 Nov 2016: Argyll Financial becomes Argyll Covenant

3 Oct 2016: Tata Steel update

2 Jun 2016: BHS to be liquidated

29 Mar 2016: Tata plans sale of UK Steel

3 Sep 2015: TPR takes dim view of late valuations

13 Aug 2015: New TPR covenant guidance

28 May 2015: Contribution notice in Carrington Wire case

22 Dec 2014: Third warning notice for Guinness Peat

18 Dec 2014: New PPF rules for Asset-Backed Contributions

19 Aug 2014: TPR announces Lehman Brothers settlement

10 Jun 2014: TPR publishes revised funding code

27 Mar 2014: EC postpones holistic balance sheet

20 Mar 2014: PPF announces new insolvency risk model

17 Mar 2014: PPF guarantees harder to certify

7 Feb 2014: Argyll Financial submits consultation response

2 Dec 2013: Regulator publishes new draft funding code

19 Nov 2013: Asset-backed contributions guidance from TPR

22 Oct 2013: FSD warning helps MF Global scheme buyout

10 Sep 2013: TPR supportive of Kodak restructuring

31 Jul 2013: Schneider Electric acquires Invensys for £3.4bn

24 Jul 2013: Supreme Court overturns FSD super-priority

8 May 2013: Support for employers in TPR's Statement

7 Mar 2019: TPR’s Annual Funding Statement a game-changer
On 5 March 2019 TPR published its Annual Funding Statement.  Previous statements have tended to be more clarifications of existing policy and adaptions of policies to current conditions.  It is fair to say that this year’s statement is likely to be far more impactful and gives an insight into the Regulator’s future direction for regulating defined benefit schemes.  We cover the key concepts below.

Long-term funding targets

Since the current scheme-specific funding regime came into being in 2005, the market has grown used to targeting Technical Provisions set according to the strength of the employer’s covenant.

The statement makes it clear the Regulator is now looking at scheme security beyond Technical Provisions and reveals it expects trustees and employers to agree a next stage target to reduce a scheme’s dependency on its employer.  By the time a scheme has reached a level of maturity (undefined) TPR expects it to be fully funded on this target  basis with the investment risk to have been largely managed out.

While many schemes are already targeting self-sufficiency or low-dependency (on the covenant) bases this is the first time TPR has publicly revealed LTFTs as an expectation across the sector.

Recovery plan length

Unlike LTFTs which have their own section in the statement, TPR’s expectations on recovery plan length are spread throughout the document.  Nonetheless, this is the clearest declaration on recovery periods since TPR moved away from the 10 year trigger for regulatory intervention.

As part of “balancing risks” when managing schemes, TPR’s approach to recovery periods will be guided by covenant strength and maturity.  The median recovery period is stated as 7 years and the Regulator expects “schemes with strong covenants should generally have recovery plan lengths which are significantly shorter than this”. 

TPR clarifies later that for a relatively mature scheme with a strong a recovery plan in excess of 7 years will be too long.

In our view it is likely that the stated median recovery plan of 7 years will become the new yardstick for funding negotiations.  For schemes with strong covenants recovery plans will need to be no longer, and most likely shorter, than this.  The position is less clear for schemes with weaker covenants but this is not unexpected given funding plans will be driven by affordability and equitable treatment (see below).

Equitable treatment

Although this is very much not a new theme, in light of the stated recovery plan expectations further clarification has been provided. 
  • Where shareholder distributions (including dividends) exceed deficit payments TPR expects a strong funding target and “relatively short” recovery plans
  • If the employer is tending to weak or weak, TPR expects deficit payments should be larger than shareholder distributions unless the recovery plan is short and the funding target is strong.
  • If the employer is weak and unable to support the scheme, TPR expects the payment of shareholder distributions to have ceased.  
The full statement can be found here.

Argyll comment:  We have not seen firm guidance from TPR around deficit recovery periods since it abandoned the 10 year trigger for regulatory intervention.  Funding discussions are very likely to focus on 7 years for stronger covenants with immediate effect.  Beyond Technical Provisions however, much of the detail in terms of pace of achieving a LTFT is absent.  It is likely therefore that TPR will need to set out its thoughts in greater detail in a new Defined Benefit Funding Code of Practice.


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