Prudent funding targets are key to the health of pension schemes

Emphasising the importance of prudent funding levels for pension schemes and stating that where sponsors are in difficulty, flexibility is available in recovery plans are the core messages published in our statement today.
The statement highlights that:
- Economic and financial conditions have resulted in cash constraints for many employers in the short term, and for some, greater uncertainty about longer term prospects;
- The current regulatory framework and approach to scheme funding is sufficiently flexible to cope with these conditions;
- Technical provisions are the scheme-specific funding standard which pension schemes must target and the regulator's requirement is that they are set prudently; there is flexibility in setting a recovery plan to repair a deficit to meet the funding objective;
- At the current time, FRS17 is unlikely to represent an adequate level of prudence without further adjustment;
- Any risk margin in the assumptions for setting technical provisions must take account of the extent to which the employer covenant can support them;
- Technical provisions should not be compromised to make a recovery plan appear affordable; the size of the deficit does not necessarily dictate annual deficit repair contributions to the pension scheme, these must be determined with reference to what is reasonably affordable for the employer.

Our statement is reinforced with a series of online case studies that provide further insight into the important task of setting funding targets and agreeing recovery plans.

To view the press release in full: http://www.thepensionsregulator.gov.uk/whatsNew/pn09-07.aspx

To view the statement: http://www.thepensionsregulator.gov.uk/pdf/EmployerCovenantStatementJune2009.pdf

To view the case studies: http://www.thepensionsregulator.gov.uk/guidance/schemeFunding/fundingCaseStudies.aspx

Media relations
The Pensions Regulator
amediarelations@thepensionsregulator.gov.uk

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