Trustees who expect high transfer value activity should take action now to protect their schemes against liquidity issues in the event of a market downturn The Pensions Regulator says.
In its latest annual funding statement published today, TPR gives guidance on how schemes should approach forthcoming valuations.
In the document the watchdog clarifies how it expects trustees and employers to fund a scheme including the topic of defined benefit transfers.
The subject of DB transfers has been high on the TPR’s agenda in light of a report authored by the former chief executive of the Money Advice Service Caroline Rookes into the British Steel Pension Scheme saga.
It proposed a number of recommendations for the regulatory and consumer bodies to help savers make the right decision about whether to transfer their pension pots from a DB scheme.
In January a new formal agreement was also announced where TPR said it will share market intelligence on DB transfers on a regular basis with the FCA and The Pensions Advisory Service so trustees can ensure members fully understand the risks involved.
Specifically it will share its reports on DB market intelligence roughly every two weeks with the FCA and TPAS.
The annual funding statement gives suggestions about how trustees can minimise risks from DB transfers.
It says trustees should monitor transfer value activity and consider liquidity issues for the scheme if accompanied by a fall in the market value of investments.
The statement adds: “Accordingly and particularly, in those schemes with high levels of transfer activity, we expect advisers to alert trustees to the risks to funding and investment from increasing scheme maturity.”
TPR’s executive director of regulatory policy, analysis and advice David Fairs says: “In order to support schemes we are setting out what we expect trustees and sponsoring employers to consider on funding, investment and covenant.
“The annual funding statement will help them think about the risks facing their scheme, to consider what levels of risk are acceptable and how to mitigate risks where appropriate.
“Trustees have fed back to us that they find this clarity helpful in negotiating good outcomes for members and avoiding interventions and action from TPR.
“We have taken a tough stance on schemes that have not been treated fairly and will continue this approach where members’ benefits are under pressure.”