Sections

The Pensions Regulator

Codes of practice

Codes of practice

Code of practice 03
Funding defined benefits

Approaching the valuation process

Objective and essential features
  1. The statutory funding objective requires a scheme to be funded to at least the level of its technical provisions. Regular valuations must be obtained by the trustees to check whether the statutory funding objective is met.38 The results of each valuation form the basis for decisions about future contributions to the scheme, including whether a recovery plan is needed to restore funding to the level of the technical provisions.
  2. Obtaining these regular actuarial valuations and making decisions about contributions is a business process which requires trustees to:
    • decide on their funding policy and draw up a statement of funding principles;39
    • obtain the valuation itself comparing assets with technical provisions;40
    • draw up a recovery plan if there is a funding shortfall;41
    • set out the future contribution requirements in a schedule of contributions;42 and
    • in some circumstances, modify the future accrual of benefits (if this proves necessary and if the employer agrees).43
  3. Before doing each of the above, trustees must obtain advice from their actuary and reach agreement with the employer.44

38 See section 224(1)(a).
39 See paragraphs 69 to 94.
40 See paragraphs 95 to 98.
41 See paragraphs 99 to 108.
42 See paragraphs 114 to 126.
43 See paragraphs 109 to 113.
44 See sections 230(1) and 229(1) respectively.
Trustee/employer agreement