With the completion deadline looming for many of the schemes that had the 'privilege' of being in the first round of valuations under the revised funding regime, we now have much more hands-on experience of the new requirements. There are many grey areas that trustees, sponsors and advisers have had to get to grips with, where greater clarity on the Pension Regulator's (TPR) expectations would make a real difference. This would allow trustees and sponsors to spend more time focusing on clear objectives and thinking through their strategy for managing risk, rather than attention drifting away from the bigger picture towards compliance and interpretation.
01
Most schemes are in far better financial shape than when the changes to the funding regime were drafted. Today's valuations are more likely to involve managing surplus and discussing the long-term aims for the scheme rather than debating how to reach full funding. Against this backdrop, some elements of the new framework feel unnecessarily rigid and could benefit from clearer signposting.
A good example is the concept of 'high resilience'. While it is straightforward in principle, its application can be awkward for very well-funded schemes. Our understanding is that the regulations are designed so that surplus is ignored when assessing resilience under the Low Dependency Investment Allocation (LDIA). Well-funded schemes often have significant exposure to credit and other matching assets and there are a number of complications around how those assets might be affected by a stress event compared to the scheme's liabilities. When combined with a test that ignores surplus this can make it difficult for trustees to demonstrate that their investment strategy is 'highly resilient' without undertaking work that is disproportionate relative to the risk posed by these schemes.
This can make trustees understandably nervous. A clear steer from TPR:
02
Last year's Annual Funding Statement (AFS) confirmed TPR's intention to keep the Fast Track parameters unchanged for valuations with effective dates up to 21 September 2025. In principle, stability is helpful. But some assumptions, particularly CPI/RPI differentials, already look outdated.
For example, a CPI-RPI gap of up to around 0.2% p.a. wider than Fast Track assumptions is now common and defensible, and it seems unnecessary for this aspect of Fast Track to lag behind.
If the Fast Track assumptions remain unchanged for too long, two outcomes are likely:
It seems unlikely to us that the overall structure and principles of Fast Track will remain unchanged until all schemes have been through their first valuation under the revised regime, but TPR has the flexibility to update the more detailed assumptions. Using that flexibility would reflect real‑world conditions and provide schemes with a more balanced choice between Fast Track and Bespoke.
03
The new Statement of Strategy requires trustees to provide narrative answers in several areas, for example, reflecting on "significant past decisions" and "lessons learned" relevant to the scheme's funding and investment strategy.
We have seen a wide range of responses so far. Some trustees state that there are no relevant past decisions, while others have tried to provide more in-depth responses.
These questions are enshrined in primary legislation so trustees have no option other than to answer them. The only end user is, however, TPR and it would be extremely helpful if they could share their thoughts on what they consider a useful and proportionate level of detail. This would give trustees preparing their first Statement of Strategy more confidence that they are meeting expectations.
More fundamentally, TPR acknowledging that completing the Statement of Strategy can be a material piece of work would help set realistic expectations about the time required to complete the process.
04
Inevitably, trustees will be anxious about whether their approach under the revised regime will pass regulatory scrutiny. Under the previous framework, TPR responses could take many months - we hope the two‑track system will allow for quicker turnaround, particularly for Fast Track submissions.
Using this year's AFS to set out typical response times would help trustees and sponsors plan more effectively and avoid unnecessary concern if a response is not received quickly.
Clearer guidance would allow trustees, sponsors, and advisers to focus on what really matters: long‑term objective setting, effective risk management, and confident decision‑making, rather than wrestling with nuances in interpretation. Fingers are duly crossed that this year's Annual Funding Statement nudges things in the right direction!
A scheme actuary at WTW with longstanding experience of advising trustees and sponsors on funding valuations.
A scheme actuary and Head of Scheme Funding here at WTW. Graham has extensive experience in helping trustees develop and implement both endgame and run-on strategies.
