The Pensions Regulator

Code of practice 03
Funding defined benefits

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Between actuarial valuations

Early actuarial valuations

Circumstances

134. Where trustees normally obtain triennial valuations, they should consider obtaining one for an intervening year instead of an actuarial report wherever, after taking advice from their actuary, it seems to them that events have made it unsafe to continue to rely on the results of the previous valuation as the basis for the current level of contributions.
135. An early valuation might be appropriate when:
     • the actuary advises that the present recovery plan may be significantly inadequate. This may be as a result of the actuary's preliminary work in preparation of an actuarial report or of a review of the recovery plan itself;
     • an employer ceases to participate in a multi-employer scheme, particularly when a recovery plan is in place;
     • a bulk transfer of assets and liabilities, either into or out of the scheme, takes place;
     • there is a significant fall in the market value of scheme assets;
     • significant benefit improvements or augmentations are granted; or
     • member movements occur, not necessarily involving augmentations, but which involve significantly more members than anticipated on the valuation assumptions taking advantage of a relatively expensive option (such as is sometimes the case with early retirement terms).

Consulting the employer

136. The trustees should consult the employer before going ahead with a valuation outside the scheme's normal cycle. This will provide the employer with the opportunity of responding to circumstances by, for example, agreeing to an increase in the level of contributions which is satisfactory to the trustees, pending the next scheduled valuation.

Review and revision of the statement of funding principles, a recovery plan and the schedule of contributions

Circumstances

137. Trustees may from time to time review and if necessary revise the statement of funding principles, any recovery plan and the schedule of contributions other than as part of the valuation process.⁹⁸ However, where trustees are advised that the impact of events on the funding level of the scheme is likely to be material, it will usually be appropriate to commission an early valuation and then review and if necessary revise any of the funding documents.
138. Trustees should consider reviewing and if necessary revising these funding documents where there is a significant improvement or decline in the employer's covenant.⁹⁹
139. They should also consider reviewing and if necessary revising the statement of funding principles if there is a change in scheme rules affecting a matter included in the statement.

Actuarial certification of the revised schedule

140. A revised schedule of contributions must be certified by the actuary before it comes into effect.¹⁰⁰ Trustees should discuss with the actuary the form of certificate being considered and whether this will require calculations as at the date of the certification of the revision or whether a calculation based on the effective date of the last valuation will suffice.

Circumstances where a revision may not be required

141. Sometimes, an employer may want to pay off a shortfall more quickly than originally planned. Rather than revising the existing recovery plan and schedule before the next valuation, the trustees may wish to treat contributions over and above the documented requirements as payments in advance of those set out in the schedule. They should ensure that the scheme auditor is consulted about and approves any proposed arrangement of this kind. The arrangement would need to state clearly exactly which scheduled payments were being treated as being made in advance.

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