The research shows that the average funding ratio for these schemes was 82.5%, unchanged from three years previously. A typical scheme in deficit might have seen its liabilities increase by 33% since the previous valuation, while average annual contributions increased by 14% and were payable over around 9 years compared to 8 at the previous valuation.
Commenting on the research, Nick Griggs, Head of Corporate Consulting at Barnett Waddingham LLP says:
“For many employers, funding a pension scheme in recent years can seem like running to stand still. The economy has been slow to recover after the recession and this has kept the pressure on scheme funding levels. Many employers have had to negotiate paying contributions over a longer period to avoid the amount becoming unaffordable. Offering additional security, such as a guarantee from a parent company, can often help trustees accept a longer recovery plan. This could also be used to reduce the employer’s Pension Protection Fund levy if prepared in the right format.
“There are other options which are becoming more popular. These have tended to be the preserve of the largest schemes, but now we are seeing solutions developing for medium-sized schemes. This might include using an asset-backed funding arrangement to meet the recovery plan, or de-risking using a longevity swap or medically underwritten annuities.
“Due to continuing low gilt yields, employers now entering a valuation cycle are likely to see that their schemes’ liabilities have increased still further. They will want to engage with trustees at the earliest possible time to ensure that the process is a true dialogue which takes account of all available alternatives.”
|
