• Of those schemes already adopting a long-term funding target, 51% used a low dependency funding basis and 49% used a buy-out basis; 78% had reached their target or expected to do so in under 5 years.
• Of the same schemes, in terms of long-term objectives, 54% intended to pursue a buy-out and 29% intended to run on the scheme in some way; 17% had not decided.
• 74% of schemes used a third party/specialist assessment of the employer covenant.
• The average assumed life expectancy was 0.4 years shorter than three years ago, when many schemes’ previous valuations were undertaken.
• 40% of schemes had put in place contingent security; the majority of schemes with such arrangements (80%) were in surplus.
Commenting on the latest In Depth, Emma Moore, associate partner at Aon, said : “With the introduction of the new DB Funding Code and the requirement to set and agree a long-term objective for schemes, it will be interesting to see how the results of In Depth change in the coming years. Of schemes already adopting a long-term funding target, 51 percent described this as ‘low dependency’ and 49 percent described it as ‘buyout’. I will be keen to see how this evolves next year when we see the first valuations under the new code. We are certainly seeing more schemes describe their long-term strategy as some form of low dependency basis - or run-on - even where a buyout is heavily anticipated. This is partly to offer greater flexibility but also to avoid the potential accounting issues that might otherwise arise.
“Given the new Code requires schemes to show that their Technical Provisions converge to their low dependency funding basis over time, could this be the death of the split pre- and post-retirement discount rate? We are still seeing over 20 percent of schemes using different pre- and post-retirement discount rates in their funding basis - but I do wonder whether we will see this fall close to zero as schemes navigate the requirements of the Code.”
Aon’s In-Depth Pension Scheme Funding analysis
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