The last few years have presented numerous challenges for sponsors and trustees of UK pension plans – from ever growing deficits in defined benefit (DB) arrangements to the significant compliance challenges of auto-enrolment – there has been much to frown about. Could 2014 be different? In a series of blog posts we will highlight the positive opportunities that may once again bring a smile to the face of those in the Pensions industry.
We start by turning an eye to scheme funding with reference to potential improvements to the regulatory environment combined with more favourable market conditions.
The stereotypical DB plan in 2013 experienced positive investment returns, which in many cases were outweighed by increasing liabilities. As the economic recovery gathers pace, and the monetary stimulus of quantitative easing is gradually withdrawn, gilt yields should rise from their artificial low. This will mean that plan actuaries can assume greater investment returns and, as a result, pension plan liabilities/deficits will decrease.
Meanwhile, following a consultation period on a new regulatory code for DB funding, we can expect the first explicit recognition of the requirement for trustees to take into account a sponsor’s need to invest in its business. This should help sponsors and trustees tackle an issue of uncertainty that has presented a major challenge in many historic valuations.
Neither of these developments will take away the headache of DB pension funding, but they will constitute a double-dose of pain relief and help those involved return to a sunnier disposition.