Pensions Regulator’s annual funding statement focuses on risk management

The Pensions Regulator has released its funding statement for 2018 in which trustees of defined benefit schemes are advised to focus on balancing the risks they face when agreeing their approach to upcoming valuations and scheme strategies.

In particular, TPR expects trustees to focus on the integrated management of three broad areas of risk: employer covenant, investment risk and scheme funding plans.

Trustees are advised that they should work with their professional advisers to agree a practical approach in managing the key risks in a way that is proportionate and appropriate for their scheme. The statement makes clear that they should prioritise risks according to how much they affect their scheme’s long term funding target and the employer’s capacity to support it.

Unsurprisingly, the issue of Brexit is addressed with tPR expecting trustees to have open and collaborative discussions with their sponsors and to consider how increasing uncertainty as Brexit approaches may affect their scheme sponsor’s ability to provide support.

Also unsurprising given recent events conflicting corporate activity with pension security, is the Regulator’s expressed concern about the growing disparity between dividend growth and stable deficit reduction payments. The statement advises trustees to assess the impact of dividends on the employer’s covenant and whether their scheme is being treated fairly in light of what it needs to pay the promised benefits.

The funding statement follows what has been a turbulent few months for the Regulator; having been criticised by some for non use of its powers in the lead up to the Carillion collapse, then receiving plaudits for hard line enforcement action against companies trying to avoid auto-enrolment duties and finally the promise of new powers contained in the recent pensions white paper.

It promises to be an interesting year.