Karina Brookes, EY-Parthenon Pensions Covenant Advisory Leader, said: “Given the challenging domestic and international economic environment created by the pandemic for UK businesses, the ambitious pace set out by TPR in the 2021 Annual Funding Statement (AFS) to catch-up on DB pension scheme payments will be unwelcome news to many companies with defined benefit schemes.
“While there’s a clear acknowledgement in the AFS of the pressures faced by companies with DB pension schemes during the past 15 months, there is no let-up in TPR’s expectation that pension schemes are not left behind in the recovery. This could lead to some challenging conversations for scheme trustees, given that the expectation on them to catch up lost contributions may be at odds with the pandemic’s economic bounce-back.”
Marc Hommel, EY-Parthenon Pensions Actuarial Leader, said: “While the AFS doesn’t introduce any major changes in underlying guidance, this shouldn’t be interpreted as a signal to sponsors and trustees to maintain their status quo objectives and strategies for funding DB schemes. Now is a sensible time to revisit objectives, priorities and actions to take into account the recent shake-up in economic, societal, demographic and market conditions, especially given the recent, rapid improvement in pension scheme funding levels together with an increasing number of affordable routes for reducing and eliminating pension risk.
“Sponsors and trustees need to work collaboratively and transparently to identify routes that meet the new but often conflicting demands they face. Funding negotiations increasingly feel like an art rather than a science, and it is likely we’ll see much greater innovation, flexibility and diversity in the resulting structures and agreements.”
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