'Watchdog plans shift to 'dynamic' recovery plan risk approach

The Pensions Regulator is set to move away from its trigger-based assessment of recovery plans to a more “dynamic” approach factoring in investment risk, it has indicated.

The watchdog will publish new annual guidance in April to help trustees undergoing triennial valuations but officials have signalled the guidance will shift away from the trigger point approach used to scrutinise plans to a more multi-faceted assessment reflecting the nuances of individual schemes.

Executive director for defined benefit regulation Stephen Soper said: “The guidance probably needs to expand and reflect on the benefit we’ve had of everybody going through two rounds of valuations now.

“Our process and our understanding of those schemes is much better than it was when we first began so we’ll be moving away from the triggers that we’ve published into a much more dynamic environment.

“It’s a little bit early for me to comment exactly on what that’s going to look like, but I think it will reflect many more of the individual conundrums schemes face and hopefully we can provide some clarity there.”

Last month, the regulator announced it would publish new guidance so fewer recovery plans would need to be scrutinised in depth or be challenged.

Currently, the regulator has three triggers relating to recovery plans – plans exceeding ten years, plans excessively back-end loaded and plans where investment returns look inappropriate

Soper, speaking at an Occupational Pensions Defence Union annual meeting last week, said TPR would use a number of factors, including investment risk, to assess recovery plans.

“It’s slightly more multi-dimensional in terms of our approach, so it also reflects on the level of investment risk taken by the scheme,” he said. “All of those factors will go in, so even a strong employer taking a high level of investment risk may still find themselves with a requirement for a relatively short recovery plan.”