Originally published 10 February 2010
Keywords: pension scheme funding, Pensions Regulator, statutory valuation, asset returns
March and April 2009 have proved to be one of the worst times for employers to have a statutory valuation for their pension schemes. Asset prices were severely depressed in March/April 2009. Stock markets have rallied considerably since then. Subsequent asset returns are, therefore, likely to have far outstripped the assumed investment returns built into a scheme's technical provisions.
In light of this, the Pensions Regulator has issued an update to its guidance on scheme funding to say that trustees can take account of improvements in funding since the effective date of an actuarial valuation.
The Pensions Regulator stresses that the guidance is issued in response to exceptional market conditions and trustees must still act in accordance with the interests of scheme members.
In practical terms, favourable asset returns may be reflected in the recovery plan and in the schedule of contributions by asking the scheme actuary to update figures from the effective date to reflect the actual scheme investment experience.
Comment
The Pensions Regulator has proved sympathetic to the position of employers in the recent economic climate. It stresses that employers should only be asked to pay what they can reasonably afford. The latest guidance continues that pragmatic approach. Employers should consider taking advantage of the Pensions Regulator's guidance on post-valuation increases in asset performance.
Although there is nothing explicit in the Regulator's guidance, the principle would appear to work both ways. If there were subsequent deteriorations in asset performance after the effective date of a valuation, then the trustees may wish to take account of that. Approaching the trustees now increases the risk of the trustees taking this approach in the future. This is something an employer may want to bear in mind in approaching the trustees.
Learn more about our Employment & Benefits practice.
Visit us at www.mayerbrown.com.
Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
Copyright 2010. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.
