Many schemes are being impacted by COVID-19 and TPR has already issued guidance to support trustees and employers. The additional guidance in today's statement deals with key issues in connection with covenant assessments and affordability, scheme funding positions and designing recovery plans.
TPR Chief Executive Charles Counsell said: “At the end of December we were seeing a general improvement in funding levels, compared with the previous three years, but the situation now will be very different for many schemes due to the COVID-19 crisis. However, we don’t yet know the full impact the crisis will have on the pension landscape.
“What is clear is that COVID-19 is testing employers and trustees like never before and it is vital that they work together collaboratively. We are clear that the best support for a pension scheme is a strong employer and so we are here to support both groups in our role to ensure savers’ retirements are protected.
“It is vitally important for all schemes to follow our AFS guidance, and the extra COVID-19 guidance we have issued and will regularly update, to strengthen their position for the tough times which lie ahead.”
TPR’s expectations are clearly outlined in the AFS, which sets out how it expects trustees and employers to approach their valuations and scheme funding in conjunction with their employers. It is particularly relevant to those conducting valuations with effective dates between 22 September 2019 and 21 September 2020 (Tranche 15) and schemes reviewing their funding and risk strategies.
The statement is based on analysis conducted since the outbreak of COVID-19 and finds that the funding position of many defined benefit (DB) schemes that have low exposures to equity markets and good levels of hedging should be in a stronger position than might be expected in the current climate.
If these risks were considered in an Integrated Risk Management (IRM) framework, trustees should have contingency plans which TPR expects to be implemented where possible. Where this was not the case, trustees and employers need to consider how far they may have strayed from their longer-term objective and develop strategies to put them back on course.
March and April 2020 valuations will be challenging. Many trustees will not have sufficient information to form a reliable view on long-term future returns from their scheme's investments and/or their employer's covenant and affordability. Where needed, trustees may consider delaying decisions about key assumptions until more clarity emerges. However, TPR expects schemes to proceed with as much of the preliminary valuation work as possible
TPR recognises the impact that COVID-19 will have had on some employers. Consistent with TPR’s COVID-19 guidance, in agreeing to any reduction or suspension of deficit repair contributions, trustees should ensure that dividends and other forms of shareholder return are also suspended.
At the beginning of March, TPR launched the first stage of a major consultation on its revised code of practice for DB funding. The principles of this consultation remain valid but its closing date for submissions has been extended until 2 September.
Annual Funding Statement 2020
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