DB schemes are being warned there are significant changes they need to take into account when making 2024 valuations.
Hymans Robertson says that triennial valuations for DB schemes are taking place against a background of change —as it releases its 2024 update to its valuation series.
It warns improved funding levels, increased affordability for buy-out and a forthcoming general election are likely to impact pension scheme funding and employer covenant, as DB schemes undertake one of their most important risk management activities.
The consultancy says there are a number of key areas which should be reviewed as part of the valuation. These include considering the huge range of changes in the market, from both a political and regulatory perspective – the forthcoming DB Funding Code – as well as improved funding positions leading to a renewed focus on endgame planning. For schemes with a 2024 valuation, this provides an opportunity to reassess if long-term funding and investment plans are appropriate.
Hymans Roberston partner and head of DB scheme actuary services Laura McLaren says: “The speed of change for DB schemes has been unprecedented in recent years. This has created a new landscape which schemes must fully review ahead of their 2024 valuation. The triennial valuation is a key opportunity for schemes to stop, take stock and look at their longer-term ambitions against a backdrop of political and regulatory change.
“For schemes that have reached the point of being able to insure benefits, they face a very different set of opportunities and challenges. The government’s ‘Mansion House reforms’ have helped to energise the discussion about alternatives to buy-in and buy-out, and taking the time to review long-term objectives will help ensure funding and investment decisions are aligned. A choice between running on the scheme or buying out with an insurer depends on a scheme’s circumstances, and the trustee’s and sponsor’s objectives and beliefs. Endgame planning will be most effective when the trustees and sponsors are pulling in the same direction.
“As schemes develop their long-term plans an element of political uncertainty looms in the background with the forthcoming general election. We are yet to understand the impact this will have on timings of existing regulatory plans, and any changes a new government will make. However, a delay to the release of the new funding code already looks inevitable and underscores the uncertainty schemes will need to navigate this year. Nevertheless, this shouldn’t stop schemes from making progress. We would urge schemes to start developing their plans sooner rather than later.”
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