The Pensions Regulator has said that three-quarters of pension schemes currently undertaking their funding valuations will be able to meet their funding requirements without significantly increasing their deficit recovery contributions.
The regulator today published analysis of how schemes were using the flexibilities in the regulatory system which it said showed it was 'striking the right balance' between protecting savers, protecting the Pension Protection Fund and keeping businesses solvent.
Its examination of schemes with valuations scheduled between September 2011 and September 2012 found that roughly one in four would not need to amend their current recovery plans which set out how they plan to close their deficits. A further 30% would be on track to meet their long-term liabilities with a three year extension to their existing recovery plan and a 10% increase in employer contributions.
Around one in five schemes could remain on track with a three year extension to their existing recovery plan, a 10% increase in contributions and making use of further flexibilities available to them, such as forecasting better investment performance in their recovery plan.
The regulator, did, however find that around 25% of schemes would need to make 'maximum use' of the flexibilities available to them in the regulator's framework because of the challenges employers faced in meeting their funding requirements.
Last week, TPR chair Michael O'Higgins said it would no longer increase scrutiny of schemes whose recovery plans were based on closing their deficits over a period of more than 10 years, as part of a move to give this 'significant minority' of schemes more regulatory breathing space.
Stephen Soper, the regulator's executive director of defined benefit regulation, today echoed these sentiments, acknowledging that some schemes were finding it 'extremely tough'.
'We're working proactively with schemes to understand how we find a way through these difficult cases,' he explained.
But, he added: 'We believe that the right balance is being struck, in our approach to the DB funding regime, between protecting retirement savers, protecting the PPF and maintaining employer viability'.
Today's analysis also highlighted the increasing amount of time schemes need to tackle their deficits, with 'tranche seven' schemes having, on average, increased their recovery plan length by 7.7 years since 2009.
Mel Duffield, head of research at the National Association of Pension Funds, said the regulator's evidence showed the 'intense pressure' pension funds were under at the moment.
'Record low gilt yields, driven down by quantitative easing and the UK's reputation as a "safe haven" for investors, are pushing up fund liabilities and leaving employers with big deficits to fill as a result,' she explained.
The regulator's conclusion that around 45% of schemes will have to use flexibilities in the funding regime showed these were 'exceptional times'.
Duffield added: 'The flexibility of the system is greatly valued by pension funds, but we do not think it is enough. There needs to be a wider rethink about how deficits are valued in relation to gilts.'
