News analysis: The Pensions Regulator’s 2013 annual funding statement has set out the flexibilities open to schemes in the tough economic climate, but pension professionals have said those carrying out valuations this year could find the process challenging.
The regulator published its statement for defined benefit schemes yesterday, which discussed the tools available to schemes in setting the discount rates for their technical provisions funding calculation and the investment return assumptions in their recovery plans.
It invited schemes to adopt an approach that best suits the individual characteristics of their scheme and employer. But pension professionals have said that schemes carrying out valuations this year could find it difficult as the regulator’s approach to overseeing DB schemes has yet to be finalised.
The body is set to consult on revisions to its scheme funding code of practice, as well as its approach to the regulation of DB funds. These will be published as a regulatory strategy – but not until early 2014 – to reflect a new statutory objective to take into account the growth concerns of sponsor companies.
“The precise wording of this new objective is not yet known – leaving the regulator, and consequently schemes, rather in limbo,” said Simon Tyler, legal director at Pinsent Masons. He added that such uncertainty could make valuations “tricky” for schemes.
Despite the uncertainty schemes could ultimately take advantage, according to Patrick Bloomfield, partner and head of trustee solutions at Hymans Robertson. “It is going to be really hard for trustees and companies doing valuations this year because they will have a sense of not knowing what the rules are,” he said.
“On one hand that will make them nervous because they would like to know, but on the other hand it frees them to do what they think is right for their scheme and their situation.”
The flexibilities open to trustees have always been there, but the regulator has previously been reluctant to strongly outline them, putting some trustees off exploring this route, said Nick Griggs, head of corporate consulting at Barnett Waddingham.
“Trustees are naturally cautious and they don’t want to risk the regulator getting involved with their scheme,” he said.
“It’s a reminder that there is flexibility in the assumptions that can be adopted and the recovery plans that can be agreed as a result of that. It could be time to completely revisit how you set the assumptions for your scheme,” said Griggs.
A spokesperson for the regulator said its new objective does not change trustee or employer duties.
“We have also tried to give sufficient indication of our developing thinking to help trustees and sponsors of all DB schemes to plan for the future,” the spokesperson added.
