TPR publishes its 2019 Annual Funding Statement today

The Pensions Regulator (TPR) publishes its 2019 Annual Funding Statement today. It covers: long-term funding target; segmentation by maturity; what TPR expects (including covenant); and TPR’s new approach. Read the Annual Funding Statement on TPR’s website.

Key points for trustees and sponsors to note are:

Setting a Long-Term Funding Target (LTFT)
TPR reiterates the importance of trustees and sponsors agreeing a strategy to reach a defined long-term goal which balances the strength and expected evolution of the covenant against investment (and other) risks. Although TPR currently sees this as best practice, it expects that this will become a requirement based on current Government policy, and it is encouraging trustees to take action now.

More specific guidance on its expectations
Continuing the trend of the last few years, the AFS includes more detail on what TPR expects from trustees and sponsors based on their circumstances. In 2019, TPR has increased the level of detail it provides to cover ten different scheme scenarios and what it expects to see being considered for each in terms of covenant, investment and funding. We expect many trustees will first want to understand which category they fall into, and how their approach sits alongside TPR’s latest expectations.

The relevance of scheme maturity and covenant to recovery plan lengths
TPR remains concerned about schemes with long recovery plans and wants trustees to do more to understand how the maturity profile of their scheme, as well as their covenant, impacts on whether a recovery plan remains acceptable. Schemes with recovery plans longer than seven years can expect to get greater scrutiny from TPR.

Ensuring schemes are being treated fairly
Finally, TPR remains concerned about the disparities between dividend growth and deficit contributions which favour shareholders, as well as other forms of “covenant leakage” and will keep up the pressure on those sponsors who are paying more to their shareholders than to their schemes.
Whilst the specific circumstances will be important, TPR expects those schemes to be funded on a prudent basis over a short period of time and states it will consider using its powers if it believes a funding outcome is not appropriate.

Alex Hutton-Mills, Managing Director Lincoln Pensions said:
“TPR’s latest funding statement reiterates the need for trustees to map out a journey plan towards a longer-term funding objective. This will need to go beyond technical provisions and, crucially, must be supported by the covenant. Shareholder returns also remain squarely in TPR’s crosshairs, especially where recovery plans are longer than it thinks are necessary.”

Please get in touch if you’d like to know more.

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