On the go: Around 300 sponsors of defined benefit schemes will have to increase their deficit recovery contributions by at least 25 per cent, according to analysis from LCP.
The consultancy’s estimate is based on the data released by the Pensions Regulator in its annual funding statement analysis 2021, published on June 24, which provides the expected position of schemes in tranche 16, with valuation dates between September 2020 and September 2021.
TPR stated that on average, many schemes with valuations as at December 2020 are likely to have larger deficits – with funding levels broadly unchanged – than those revealed at their previous valuation date. This is due to market movements over the three-year period, it added.
On the other hand, pension funds with valuation dates in March and April 2021 will have a smaller deficit than those revealed at their previous valuation date, or may be in surplus, the regulator said.
For schemes in deficit at the last valuation and expected to be in shortfall this time around, the TPR estimates that two-thirds (66 per cent) would need to increase their DRCs if they were to stay on track to clear their deficit on the previously agreed schedule.
LCP stated that nearly half of these schemes would have to increase contributions by at least 25 per cent, with a small number of schemes – around one in 25 – needing to treble their DRCs.
The consultancy estimates that among the tranche of schemes covered by TPR’s research, several hundred could face an uplift in their DRCs of more than 25 per cent, with the additional bill running into hundreds of millions of pounds a year.
Jon Forsyth, partner at LCP, noted that “although some pension schemes have made progress on the funding of their scheme, there are still many that are no nearer to clearing their deficits than they were three years ago”.
He said: “Despite billions of pounds’ worth of employer contributions going into the schemes, adverse market movements mean that they have been running to stand still.
“To keep to their original timetable for clearing deficits, the regulator’s analysis shows that hundreds of employers may have to hike their contributions, in many cases by more than 25 per cent.
“As a result, we expect the employers sponsoring such schemes will be looking to explore other options, including providing other forms of security to the pension scheme or extending the deadline to clear the shortfall.”
