Pensions Regulator’s annual funding statement ‘Useful clarification, recognising improved funding levels and current uncertainties’

The Pensions Regulator (TPR) has today issued its Annual Funding Statement for 2025. This is the first such statement since the start of the new funding regime, which applies to actuarial valuations with effective dates on and after 22 September 2024.

TPR recognises that DB scheme funding levels continue to improve, whilst uncertainty in financial markets has increased. It continues to encourage trustees to ensure that their employer covenant is sufficient to deal with the risks that their schemes are facing.

Richard Soldan, Partner at LCP and Head of LCP’s DB Funding Group, commented: “In this year’s Annual Funding Statement TPR has helpfully provided more clarity, which will be useful for trustees and employers as they go through their first valuations under the new regime. This includes more detail of the "supportable risk" test – the key integrated risk management step in the new valuation process – where we had encouraged TPR to set out its expectations in more depth.

“With their estimates showing more than 50% of schemes fully funded against a buy-out measure, TPR rightly encourages schemes that are now better funded to be focusing on endgame planning, as well as highlighting the need for all trustees to engage early and collaboratively with their advisers as part of the valuation process.

“I also recommend that trustees consider early in the process what they will be submitting to TPR at the end of it. This will help focus on what is important, and will highlight the key conclusions and statements that trustees will need to make to TPR under the new regime.”

Helen Abbott, Partner and covenant adviser at LCP, said: “It’s good to see TPR being clear that a proportionate approach can be taken to covenant assessment where future reliance on the employer is low, with the focus on quantifying what level of support the scheme is likely to require, and then confirming that the employer can provide “at least” that.

“There’s also some welcome clarity on the important role of contingent assets, in particular that trustees don’t need to seek to enhance their contingent asset arrangements, for example guarantees, if they are confident they are already sufficient to support the scheme’s journey plan.”

John Clements, Partner and investment adviser at LCP commented: “Given how volatile investment markets have been recently, it’s timely that TPR has highlighted that trustees should recognise the effects of heightened geopolitical risk and trade uncertainty. Trustees should be alert to the short-term effects on liquidity and cash flow requirements, as well as the longer-term implications for their investment strategy.”