TPR highlights for trustees the flexibilities in agreeing Technical Provisions and recovery plans, supporting employers facing challenging economic conditions.
The statement highlighted the emphasis on flexibility and is in tune with the Government’s desire to shift the balance of regulation in favour of private sector investment and growth, recognising that recent economic conditions have put defined benefit sponsors under significant financial pressure. As part of this, the Government will be providing the Pensions Regulator with a new statutory objective to support scheme funding arrangements that are ‘compatible with sustainable growth for the sponsoring employer’.
Key points of emphasis (perhaps rather than completely new points) are:
- Trustees can be flexible in setting valuation assumptions whilst still being prudent
- Trustees can be flexible in recovery plans tailoring them to the employer’s circumstances and what is reasonably affordable
- Trustees are encouraged to take and be able to demonstrate an integrated approach to addressing covenant, investment, and funding risks
- TPR is moving away from using triggers such as the 10 year recovery plan
Argyll comment: this is more of a statement of emphasis rather than a sea-change of TPR’s behaviour. It could be argued that the flexibility referred to is already part of TPR practice and the May statement is only really one of existing policy. Nonetheless, the fact that TPR has made this statement emphasising flexibility will no doubt be helpful to employers in upcoming funding discussions. It also seems likely that an integrated approach to addressing scheme risk will be an important feature when TPR consults on the new Funding Code of Practice in the Autumn, and is something that Argyll Financial firmly supports.