U.K. Pensions Regulators Worried About Late Deficit Funding Reports

September 26, 2007 (PLANSPONSOR.COM) - The U.K. pension authority said Wednesday it was concerned by the number of employers who were late in submitting their required proposals on how they intend to close their pension funding deficits.

That concern was contained in an analysis by the nation’s Pensions Regulator of the pension plans’ deficit-closing proposals – known as “recovery plans” – according to a news release.

Also included in the analysis was a recognition among pension trustees and sponsoring employers of the need to make “prudent” assumptions on which they have calculated the value placed on their liabilities for the “technical provisions” portion of their Pensions Regulator report.

U.K. authorities also highlighted:

  • how their regulatory “‘triggers” have been used to prioritize plans requiring further action in their efforts to close funding deficits;
  • the range of reporting plans’ investment return assumptions; and
  • the variability of pre- and post-retirement discount rates being used;

According to the announcement, the new funding program for defined benefit plans was set up by the U.K.’s Pensions Act of 2004 and became effective December 30, 2005. The deficit-closing proposals that were the basis of the agency’s latest analysis are required to set out how and how quickly the shortfall is going to be eliminated.

Key findings from the analysis, based on recovery plans submitted up to the end of July and with valuation dates in Q4 2005 and Q1 2006 shows:

  • around one-third of plans did not ‘trigger’ further action by the regulator. Of the 70% that did trigger, a large proportion needed only minimal action such as a request for further information or the need for clarification of points of detail with trustees;
  • “due regard” is being paid to the regulator’s Code of Practice with plans acknowledging the principle of reasonable affordability in their blueprints to eliminate deficits; and
  • more than 80% of employers are producing plans no longer than 10 years in length, with an average plan length of 7.5 years.

Commenting on the analysis, Tony Hobman, chief executive of the Pensions Regulator said the analysis “provides a useful snapshot of a dynamic and still unfolding situation that will be of interest to the wider market. Taken on balance, I believe that our analysis shows that trustees and employers are embracing the new funding regime.”