Who Sets the Technical Provisions?

A dilemma at the heart of the Pensions Regulator is the extent to which it has the power to influence just how much money a pension fund has in its coffers. The watchdog is caught between the statutory obligation to safeguard member benefits and the limits of its ability to make judgments or directions on appropriate levels of scheme funding.

The Regulator clearly has a very difficult job when it comes to assessing whether the combined weight of technical provisions, covenant assessment and recovery plan length are appropriate for the protection of scheme members’ interests. The law leaves it to pension trustees and employers to make these finely crafted judgments relying on the knowledge, experience and professional skills of their advisers.

Our experience with the Regulator indicates that, when it is assessing scheme funding, some caseworkers have been pushing back with the clear aim of increasing the strength of technical provisions to a usually undisclosed more satisfactory level presumably based on some rule of  thumb calculations. A statutory objective of the Regulator is to protect the PPF, so attempting to improve funding levels is no surprise.

For an operation of the Regulator’s size, it is understandable that internal guidelines are used to filter and potentially trigger a more detailed review. The concern is that there will be a drift away from the scheme-specific concept towards a more formulaic approach. The UK has tried a prescriptive funding standard with the MFR and has jettisoned it. Allowing it to creep back in to the system, even if unintended, is unacceptable.