The Pensions Regulator (TPR) has published its Annual Funding Statement (AFS) for 2019, setting out its expectations of the trustees of defined benefit (DB) pension schemes and their sponsoring employers on scheme valuation matters.

The key messages from the AFS are:

Long-term funding targets – Trustees and employers should agree a long-term funding target (LTFT), and have a ‘journey plan’ of how to achieve it.  Investment and funding strategies should be consistent with that target, and trustees and employers should be in a position to evidence the alignment between those strategies and their LTFT.  The Government intends to introduce a requirement for schemes to have an LTFT: trustees should take steps to factor the concept of an LTFT into their thinking (if they do not already do so), in order to be better prepared for when the requirement comes into force.

Maturity – With most schemes being closed to new entrants, maturity issues are becoming more prevalent in funding and investment considerations.  As schemes mature, trustees increasingly need to take into account the interaction between

  • the levels of both assets and underfunding, and of benefits being paid out.
  • a scheme's ability to reduce its funding deficit in a "reasonable timeframe", through investment returns and contributions. 

TPR’s expectations of trustees and employers – The AFS sets out TPR’s expectations for various sub-categories of DB scheme, divided by characteristics such as scheme maturity, funding position and employer covenant strength.  Key risks are set out for each sub-category, and TPR’s expectations are outlined in terms of covenant, funding and - newly for these tables - investment matters.  In terms of investment matters and most of those sub-categories, TPR expects trustees and employers to:

  • set a long-term asset allocation consistent with the scheme’s LTFT.
  • establish a 'journey plan' to move towards that allocation. 
  • quantify the impact on funding of adverse investment performance. 
  • test and evidence the covenant's ability to support downside investment risk by means of additional cash and non-cash funding, without extending the length of the recovery plan. 

TPR’s new approach – For some time, TPR has been emphasising its new approach to regulating DB schemes.  The AFS notes that TPR will be proactively contacting schemes in relation to which it has concerns regarding specific aspects of their funding or investment approach, and, in particular over the next few months, those schemes in which concerns exist regarding equitable treatment (e.g. regarding the relative levels of dividends and deficit reduction contributions paid by an employer).

TPR will also be contacting a range of schemes in relation to which the recovery plans that are in place are, in its view, unacceptably long.  TPR will set out its concerns and ask questions of the parties with a view to addressing those concerns.  TPR intends to include schemes with a range of employer covenant strengths in the exercise.


Trustees and employers should consider the AFS and understand into which sub-category their scheme falls: TPR’s views on the key risks of each, and how it expects trustees and employers to approach covenant, funding and investment matters are a useful starting point for discussions between the parties and their advisers.

The AFS is available to view here.