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The Pensions Regulator’s latest annual funding statement

The Pensions Regulator’s latest annual funding statement

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Volume 2024 | Issue 10

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The Pensions Regulator has published its latest annual funding statement for trustees and sponsors of DB pension schemes.

While many of the messages contained in the statement are relevant to all DB schemes, it is particularly aimed at those with valuation dates in the 12 months to 21 September 2024 (Tranche 19), as well as trustees and sponsors who are currently reviewing their funding strategies.


The Regulator’s analysis suggests that the aggregate funding level for all Tranche 19 schemes will now be ahead of that expected three years previously, with less than a quarter of schemes having an expected deficit on the technical provisions basis and around half with a surplus on a buy-out basis.

All Tranche 19 valuations will be regulated according to the requirements of the legislation and guidance in force at the effective date of the valuation. The new legislation and revised DB funding code are expected to apply to valuations with effective dates from 22 September 2024.

The Regulator will continue to risk assess Tranche 19 valuations in a proportionate way. Trustees and employers must be aware of the Regulator’s expectations and be prepared to justify and explain their approach with supporting evidence.

The revised DB funding code of practice will be published over the summer, together with supporting documentation plus the consultation on updated covenant guidance. Trustees are encouraged to consider the steps they can take now to align with the new funding code, to ensure they do not have to make significant changes at the next valuation.

Key messages in the statement

  1. Material improvements in funding levels present an opportunity to reassess long-term targets and consider run-on, consolidator or insurance options.
  2. Trustees with significantly improved funding levels should consider whether the existing strategy and level of risk is in members’ best financial interests. If it isn’t, some of the funding level improvements should be redirected towards a funding and investment strategy that is aligned with their future plans for the scheme.
  3. Trustees with deficits on a technical provisions basis should continue to focus on achieving a recovery plan that is as short as reasonable, based on the employer’s affordability, while paying careful attention to the employer covenant.

General considerations for schemes currently undertaking a valuation

Long-term objectives based on low interest rates, and their associated funding and investment strategies, now need to be reviewed.

Contingent assets (e.g. guarantees, escrow accounts, and asset-backed funding arrangements) expressed in nominal amounts may look more favourable.

When facing requests from employers to reduce or suspend contributions, and from members for discretionary increases, trustees should consider their overall position, the resilience of their investment strategy to future financial market movements, and their employer covenant. Specifically in relation to discretionary increase requests, trustees should consider members who would benefit, and any history of making these payments.

Economic uncertainty (around interest and inflation rates) plus geopolitical instability could continue to impact investments and the employer covenant in different ways.

Trustees of schemes reliant on employer covenant need to be mindful of re-financing risks, covenant leakage, and fair treatment.

Trustees of all schemes should allow for the potential impacts from climate change and wider sustainability issues when considering their future scheme horizons, and their possible long-term covenant, investment and funding strategies.

Reviewing funding strategies

Last year’s statement broadly grouped schemes into the following three groups (which are expected to remain relevant for Tranche 19 schemes). The Regulator’s guidance from previous years’ statements applies, including the accompanying tables in last year’s statement.

Funding level is at or above buy-out

Main options include buying out or running on. Consolidation might be an option subject to gateway tests. Some schemes may adopt a strategy to run on in the short to medium term and buy-out when specific targets are met (e.g. when surplus, maturity, cash out flow or asset size hits certain levels). Trustees should document their strategy and explain why it is in the best interest of members.

Regardless of the focus of the strategy chosen by the trustees (e.g. buy-out or run-on), advice may be needed about the risks and benefits to the scheme. Any new models or options they are contemplating should be understood, including areas where they may be transferring control over key decisions to third parties.

Funding level is above technical provisions but below buy-out

Agreeing (and reviewing) a long-term objective and the timescale for reaching it is the priority. Plans to gradually transition a scheme’s investment strategy to align with that in the long-term objective, with triggers for action as the scheme funding improves (or the scheme matures), are also appropriate.

Emerging options such as consolidators, capital-backed journey plans, and the recent consultation on a public sector consolidator via the Pension Protection Fund are considerations. Improved funding levels should allow such options to be explored.

All options available should be considered. More detail will be provided in guidance on DB alternative arrangements for consolidation later this year.

Funding level is below technical provisions

Bridging the gap is the priority. Technical provisions should be revisited to ensure they are aligned to the long-term funding target. Risk-taking should be supported by the employer covenant and should reduce as funding improves (or the scheme matures). Deficits should be recovered as soon as the employer can reasonably afford.


While this year’s statement does not contain any surprises, the Regulator is right to prompt trustees to review their options in light of the general improvement in funding levels and not just to keep to the status quo. The statement also contains additional guidance for schemes considering run-off or consolidation options and for those that are in a surplus position, which are key themes from recent consultations. We expect further guidance and commentary in these areas over the coming year.