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Page last published: 16 December 2008

The Pensions Regulator
Press releases issued in 2008
Press release PN08-27
11 December 2008
Recovery plans show positive trends in addressing pension deficits - but challenges ahead

Positive steps have been made to address pension deficits through the scheme funding regime, and clearance activity is on a downward trend, data published today by the Pensions Regulator shows.

The report outlines the regulator's findings in relation to scheme funding where recovery plans have been put in place, updating last year's similar report. This year, data has also been included on applications for clearance - the voluntary process to obtain assurance from the regulator that it will not use its powers in relation to transactions that affect a pension scheme.

Pensions Regulator chairman David Norgrove said: "Scheme funding improved between 2005 and 2007 but current economic conditions are far more difficult."

"Trustees should not over-react in the face of the downturn, but should ensure they are active and alert to potential changes in the health of the sponsor, and to the funding level of the scheme. In responding to short-term cash flow difficulties trustees should first consider back-end loading recovery plans. Where valuations show a much larger deficit, then as we said in our October statement, this may result in longer recovery plans being proposed. We will of course keep our approach under review as the situation develops."

Scheme funding - key findings and economic conditions

While the recovery plan data shows positive steps being made to address deficits, the recovery plans were for the most part set in economically benign circumstances.

· Technical provisions increased from 107% to 119% of s179 liabilities. The average technical provisions funding level also increased, from 86% to 90%.

· Longevity assumptions have strengthened. Average assumed expected age at death for a 65-year-old increased for men from 85.3 to 86.0 years for current pensioners, and 86.5 years to 87.6 years for future pensioners currently aged 45.

· Weighted by scheme size, average recovery plan period reduced from 9 to 6 years. Unweighted average fell from 7.7 to 7 years.

Economic factors affecting recovery plans received over the next year will be very different. During this time the regulator expects to see:

· Trustees keeping the employer covenant, and existing recovery plan, under review.

· Continued primacy given to the selection of adequately strong technical provisions, relative to the employer covenant.

· Recognition that there should be less weight put on FRS17 as a measure, given that higher corporate bond yields have led it to diverge from other measures.

· Where there are short-term concerns over affordability a back-end loaded plan may be more appropriate for member security than extending plan length. However, where a new valuation shows a much larger deficit, a longer reco

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Contents

The Pensions Regulator Press releases issued in 2008 Press release PN08-27 11 December 2008 Recovery plans show positive trends in addressing pension deficits - but challenges ahead

Other products

The Pensions Regulator
Press releases issued in 2008
Press release PN08-27
11 December 2008
Recovery plans show positive trends in addressing pension deficits - but challenges ahead