Funding Defined Benefit pension schemes: an integrated risk management approach

The last 12 years have seen the evolution of a new funding regime under the supervision of the Pensions Regulator. Over this period, there has been significant turbulence in financial markets, including record low interest rates. This paper takes a critical look at the development of funding approaches and methodologies over this period. It analyses the Pensions Regulator guidance and how scheme specific actuarial methods have emerged since the move away from the Minimum Funding Requirement in 2001 and the introduction of the Scheme Specific Funding Requirements in 2005. It asks whether these new methodologies have been successful from the perspective of members, trustees, employers and shareholders. At a time when actuarial valuation methodologies have faced considerable criticism, this paper aims to propose a pension funding methodology which is fit for purpose and also reflects the latest guidance from the Pensions Regulator on integrated risk management.

Pensions (Corporate Insolvency Only)

Transaction avoidance issues may arise in relation to pensions in the context of corporate insolvency. However, such issues are of a rather different nature from those that arise in the context of bankruptcy and are discussed in Chapter 14. In the bankruptcy context, the issue is avoidance of transactions by the bankrupt (in the form of contributions to pension schemes) that have diminished his estate. Avoidance is therefore sought for the benefit of creditors. In the present context, the issue is avoidance of transactions by the insolvent company or others that have diminished the funds of an occupational pension scheme in respect of which the insolvent company is the employer company. Avoidance is therefore sought for the benefit of the members of the scheme rather than the general body of creditors of the company.Moreover, if the company has received assets under the transaction in question and avoidance of the transaction is sought with a view to recovering such assets, such avoidance will operate to the detriment of the general body of creditors. The relevant provisions and principles are explained more fully below after a few words about pension scheme deficits and the Pensions Regulator.