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Valuation advisory

Since the introduction of the scheme specific funding regime, pension scheme sponsors have had to play a much more active role in the triennial actuarial valuation process. Sponsors need to strike a balance between:

  • conflicting demands for cash;
  • ensuring that they satisfy pension scheme needs, service debt and provide appropriate levels of return to shareholders;
  • whilst retaining sufficient cash within the business for investment.

The need for this balance against a current backdrop of very low gilt yields makes for some interesting debates on the funding of defined benefit pension schemes.

We work with many corporate sponsors of pension schemes, guiding them through pension scheme valuation processes and the negotiations with scheme trustees.

Generally we encourage our clients to take a proactive approach to their valuations. Putting forward company proposals at an early stage can widen the range of outcomes being discussed with trustees and improve the ultimate outcome.

Sponsor covenant

The Trustee’s assessment of the company’s sponsor covenant will be the foundation for any funding valuation, impacting the level of prudence within the valuation and the form of the recovery plan.

We work with companies to review the covenant afforded to schemes, and how the relevant information can be presented to the Trustees. In carrying out such reviews we work closely with our covenant advisory specialists, bringing together the actuarial and covenant matters.

Setting technical provisions

Reviewing funding valuation assumptions is a core skill of our business; giving consideration to the economic and demographic factors which can impact the various assumptions. This allows us to assist companies in negotiations with Trustees to secure a fair and realistic funding valuation and recovery plan.

We note that in conjunction with the Deloitte audit and transaction practices we review around 400 sets of assumptions each year proposed for a variety of purposes. From this we gain valuable knowledge on the range of approaches used to set assumptions across the pensions industry.

Agreeing a recovery plan

Pensions Regulator guidance states that trustees should aim for any shortfall to be eliminated “as quickly as an employer can reasonably afford”. Reasonable affordability is not defined and trustees and employers have may have very different views on this. We assist companies in negotiating recovery plans with their trustees, aiming to achieve a balanced position. In doing so we help our clients to consider a range of approaches and funding solutions, some of which may prove to be more cashflow-efficient and could be structured so as to provide protection against the risk of overfunding.

Pension scheme valuations - A corporate guide

In order to help scheme sponsors, we have developed a corporate guide to pension scheme valuations. The guide is designed to give the essential background to the valuation process so as to help companies determine their optimal strategy and covers a wide range of topics including:

  • Corporate valuation strategy;
  • Presenting sponsor covenant;
  • Setting technical provisions; and
  • Avoiding overfunding risk.

The guide also presents some interesting examples aimed at highlighting the range of approaches and solutions available.

For further information, download our report on the guide.

Key contact

  • Paul Geeson
    Partner
    +44 20 7303 0878
  • Mark Jones
    Director,
    +44 20 7007 2363
  • Lesley-Anne Cameron
    Senior Manager
    +44 20 7007 4503

Useful links

  • Meet the team
  • Submit a request for proposal
  • Contact us
  • Careers
  • Return to Pensions Advisory homepage
  • Return to Actuarial & Pensions homepage

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