UK - The number of UK defined benefit (DB) pension schemes in breach of the 10-year recovery plan limit set out by The Pensions Regulator (TPR) has increased drastically since last year, a new research has found.

According to Baker Tilly's latest Pension Scheme Trustee Confidence survey, more than one-third of DB schemes in deficit (34%) have recovery plans exceeding 10 years.

Among those in deficit, 23% have recovery plans of between 11 and 15 years, while 11% have recovery plans exceeding 15 years.

In comparison, the same survey conducted last year showed that only 22% of the underfunded DB schemes surveyed had recovery plans exceeding 10 years.

Bruce Mackay, head of covenant assessment services at Baker Tilly, said: "At face value, it is a worrying trend. The Pensions Regulator guidance suggests an upper limit of 10 years.

"Given the economic climate, there is clearly some room for flexibility by trustees and TPR to allow employers longer than 10 years to rectify the deficit.

"Nonetheless, it is concerning that over a third of schemes have drifted beyond the guideline.  Let's hope that this is a trend we see reversing."

Baker Tilly's survey found that only 12% of employers have sought to renegotiate their recovery plans within the last 12 months, ahead of the next scheme valuation.

Mackay added: "Recovery plans are seen as sacrosanct, and employers are often understandably reluctant to renegotiate them. However, with the economy continuing to struggle, more employers may be forced to do so."

The study also found that trustees remain positive about employer support in spite of the current economic climate.

Mackay said the most recent round of quantitative easing would only increase the pressure on trustees by depressing gilt yields even further.

But he said he believed the situation could reverse and right itself.

"Deficits could easily correct themselves on the liability side if gilt yields started to rise," he said.

"If equity markets were to continue to rise too, that will also help erode deficits, and we should start to see recovery plan periods shortening again."

Mackay encouraged trustees to focus on securing as much cash and other forms of asset-backed support, while keeping a close eye on the employer's covenant.

In other news, Baker Tilly has been selected by NOW: Pensions Trustee and NOW: Pensions Management to provide tax compliance services.

Morten Nilsson, chief executive at NOW: Pensions, said: "A key factor in offering a fully transparent solution is the ability to audit that solution, and Baker Tilly brings extensive sector specific experience."

The launch of NOW: Pensions in the UK - which is backed by Denmark's ATP - was announced in September last year.

Topics