Long-term funding targets for DB pension schemes
Richard Farr, MD at Lincoln Pensions, wrote an article addressing long-term funding targets for the sponsors of defined benefit pension schemes, for the publication Financial Director.
Long-term funding targets were announced by the Pensions Regulator in its 2019 Annual Funding Statement, released in March 2019.
Richard explains why long-term funding targets have arisen and what they are. Sponsors will be expected to directly bear their pension scheme risks, so they must make a concerted effort now to manage them.
Three key actions for sponsors are:
- Prepare to disclose the size of the ‘real’ pension risks to stakeholders to avoid surprising them in the future
- Engage with the trustees on investment decisions, and ensure the risks they are taking are ones the sponsor is able, and willing, to bear
- Explore the use of alternative security structures to reduce the risk of overfunding the scheme and inefficient use of the business’ capital.
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