UK - More than a quarter of lay trustees do not believe they will meet The Pension Regulator's expectations of clearing a defined benefit (DB) scheme's deficit within the next decade, Aon Consulting has claimed.

Findings from Aon's 2008 Trustee Report - entitled 'Hard Miles Rewarded, Defined Benefit Pensions: The Trustee View' - revealed 56% of non-professional trustees believe their scheme will move from a deficit to a surplus in the next 10 years.

Of these, 61% attribute the change in the funding position to employer contributions, while 27% believed the improvement would be generated by investment performance.

However, 27% of the 234 trustees surveyed claimed their scheme's current deficit will still be there in 2018, despite TPR stating it would focus its attention on schemes with recovery plans of longer than 10 years.

Paul McGlone, principal and actuary at Aon Consulting, said: "This goes against the expectations of TPR and, more importantly, implies over a quarter of companies with final salary schemes cannot afford to make good the deficits over the 10 years.

"While there may be good reasons for not meeting these expectations - and the Regulator has said that he will take these into account - clearly he will want to take a closer look at these pension schemes," he added.

That said, Aon believes trustees may still be able to explore other ways of addressing their deficits, perhaps through implementing contingent funding arrangements which could reduce the scheme's Pension Protection Fund (PPF) levies.

In addition, McGlone suggested the "bullish attitude" of 57% of trustees was "encouraging" and reflected the belief "schemes are, in the main, adequately funded by the sponsoring employer".

Aon attributed this attitude to improved communication between trustees and the employer over funding arrangements, although McGlone suggested there may still be some challenges ahead as the two sides may have "differing expectations" on the future of the scheme, particularly with the increased activity in the buyout market in the first part of 2008.

McGlone added: "The Trustee Survey illustrates that trustees are generally upbeat about the future for DB schemes. But while trustees are being robust in terms of stepping up to increased responsibilities and governance requirements, there are still substantial communication gaps between trustee boards, their sponsoring companies and members."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

Topics