The Pensions Regulator (TPR) published its Annual Funding Statement on 26 May 2021. It is aimed at both trustees and sponsors, particularly those with triennial actuarial valuations between 22 September 2020 and 21 September 2021.
The statement confirms that current valuations will be regulated under existing legislation and guidance, since the new defined benefit (DB) funding code of practice is expected in late 2022 at the earliest.
TPR continues to encourage schemes to set a long-term funding target, if they have not already done so. This is seen to be good practice and will help schemes prepare to comply with the Pension Schemes Act 2021.
TPR has highlighted important areas to consider for current valuations. These include inflation, mortality (and the impact of COVID-19 on this), investment liquidity, covenant and contribution affordability in light of the pandemic and BREXIT, and allowing for post-valuation experience.
To understand how assumptions can change and to reflect the above, TPR encourages the use of scenario analysis not just for investments but also covenant and mortality.
Actions you can take
Check you understand how your sponsor has fared during the COVID-19 pandemic and consider how this might impact your funding and investment strategy.
Commission scenario analysis to better understand your scheme's risks, to refine your scheme's long-term journey plan and to develop your risk management framework.
Choose your inflation assumptions carefully in light of the planned alignment of the price indices RPI and CPIH in 2030 and ensure inflation assumptions are consistent with any inflation hedging within your investment strategy.
Ensure mortality assumptions are balanced and evidence-based, since the longer-term impact of COVID-19 is uncertain.
TPR expectations based on covenant recovery from COVID-19
The finer detail: Key items covered by the Annual Funding Statement 2021