Costs, assets and liquidity plan (CALP)

CDC code in force: 1 August 2022

The CALP gives key financial information to help us assess whether the scheme meets the financial sustainability requirements. We expect the CALP to be consistent with the other information presented by the scheme, especially the continuity strategy.

The trustees should produce the CALP with the co-operation of any sponsoring employers.

The CALP should:

1. cover a period of three to five years from the point the trustees agree it
2. include an estimate of the trustees’ risk appetite for their financial reserves and any support from employers
3. contain a statement about the level of prudence in their estimates
4. include an assessment of the different levels of liquidity needed throughout the period covered by the CALP and continuity strategy
5. identify the resources allocated to each section separately where there is more than one section
6. include an explanation of assumptions and levels of prudence adopted in various elements of the document
7. give a range for any variable items, explaining how that range was reached
8. explain why any element omitted from the CALP cannot be provided

The information in the CALP is grouped into four sections:

1. Costs in relation to benefits
2. Income in relation to benefits
3. Assets held to meet costs in relation to benefits
4. Liquidity of those assets

Costs in relation to benefits

The CALP must include the following information in relation to the costs of running the scheme:

1. The estimated cost of running the scheme for each year of the period covered by the CALP, including^CS1:
   • the costs paid to asset managers or an in-house team to manage the scheme’s funds, whether deducted at source or not
   • the costs incurred to implement the investment strategy
   • the costs of advice taken on investments
   • the remuneration and overheads associated with paying trustees and staff
   • the cost of professional services commissioned by the trustees, such as actuarial, audit and legal advice
   • the cost of scheme administration, activities associated with receiving and reconciling payments, compliance and communications to members
   • any costs incurred by the employer, including planning, communication, marketing and any dedicated support provided by them to the scheme
2. Details of any actual or potential financial liabilities arising from any contract between the trustees or sponsoring employer and any service provider to the scheme.
3. The estimated costs arising from the scheme’s compliance with the duties in its continuity strategy, including:
   • a breakdown of the activities required to discharge the duties in the continuity strategy
   • an estimate of the compliance cost for each activity identified
   • the amount of assets required for the scheme to meet those costs
4. The estimated cost of running the scheme for two years^CS2 after a triggering event, or any shorter period agreed by us, including:
   • an estimate of the length of time needed to run the scheme in accordance with its continuity strategy after a triggering event
   • an estimate of the monthly gross cash cost of running the scheme
   • an estimate of the gross cash run-on costs for two years after a triggering event
   • the assumptions used in those estimates
5. Details of the following costs, and the strategy for ensuring that the scheme’s financial resources are sufficiently liquid to meet them as they fall due:
   • the estimated costs of complying with the continuity strategy during a triggering event period
   • the estimated cost of closing and winding up the scheme after the transfer of assets
   • the maintenance of reserves if the scheme is following continuity option 3
6. Any provision made by the trustees and employers to fund contingent liabilities in respect of the scheme.
7. Details of the expected cash flows into and out of the scheme for every year of the period covered by the CALP.
8. Details of any existing or expected borrowing by the trustees, including the identity of the lender, the loan amount, the interest rate, the repayment date, and any security taken by the lender.
9. For new schemes, or sections of them, the estimated, projected or actual cost of setting up the scheme or section.

Income in relation to benefits

The following items must be detailed^CS3:

1. The anticipated scale of the scheme at milestones set at least annually for the period covered by the CALP. The choice of details provided at each milestone is at the discretion of the trustees, but should as a minimum include:
   • the number of members in the scheme, including estimates of those accruing benefits, deferred and drawing benefits
   • any income from contributions paid to the scheme
   • the assets under management or administration in respect of benefits
   • any income from charges on assets under management or administration in respect of benefits
   • any income from charges paid by participating employers
   • any income from assets not designated to providing benefits
   • the number of participating employers in any sections of the scheme providing CDC benefits
   • the assumptions and dependencies on which the information presented at each milestone depend, together with a sensitivity analysis of those assumptions
2. Any sources of income for the scheme, including the estimated income from each source, for each year of the period covered by the CALP.
3. The principal sources of income of each participating employer, as detailed by that company’s strategic report, to the extent that the income is available to the scheme.
4. An estimate of the monthly gross income due to the scheme for two years after a triggering event, or any shorter period determined by us, with reference to:
   • the number of members accruing, retaining or being paid benefits
   • any income from contributions received in respect of benefits
   • the assets under management or administration
   • any income from charges on assets under management or administration
   • any income from charges paid by participating employers
   • the number of participating employers in any sections of the scheme providing CDC benefits
   • the assumptions used in arriving at these estimates

Assets

The CALP must include details of the assets held by the trustees to meet the financial sustainability requirements, including^CS4:

1. a description, including values, of any haircuts applied to the assets at the effective date of the CALP
2. the percentage of the scheme’s financial sustainability requirement met by the assets
3. the strategy for meeting any shortfall between the scheme’s income and the costs it will experience during the period covered by the CALP
4. details of any escrow agreement, bank guarantee, letter of credit, guarantee, commitment, indemnity, legally binding agreement or insurance policy held by the trustees intended to cover any aspect of the financial sustainability requirement
5. the strategy for maintaining the short-term solvency of the business operations supporting the scheme. This includes information about the scheme’s ability to pay for services as those liabilities fall due.
6. the text of any provision in the trust deed and rules providing that trustees, employers or third parties must pay the amounts shown in the ‘Costs in Relation to Benefits’ section of the CALP
7. the text of any provision in the trust deed and rules that empowers any person to change the rule about who is liable to meet the costs of the scheme
8. details of any existing or expected lending by the trustees, including the identity of the borrower, the loan amount, the interest rate, the repayment date, and any security taken by the trustees
9. where the scheme is reliant on an employer, or employers, to support the costs of the scheme the information set out in the Employers section

Liquidity

A triggering event can lead to immediate costs at short notice. Trustees must therefore be able to show the high liquidity of at least half of the reserves supporting their projected running costs for 12 months from the date of their most recent CALP^CS5.

The way funds are held in each scheme is likely to be different and in keeping with the way it is funded and operated. However, we are unlikely to be satisfied by a scheme:

1. with cash, or near cash, assets that are less than 25% of projected running costs (if reserved for)
2. with cash, or near cash, assets that are less than 15% of the calculated necessary financial resources
3. that holds a significant level of non-marketable or illiquid assets in its financial reserves
4. with marketable assets held as part of the financial reserves that are not admitted to trading on regulated markets
5. that relies on the sale of directly held physical assets, for example property, as an element of its financial reserves
6. where more than 20% of the scheme reserving requirements are directly met by charges on, or revenues from, scheme assets

Legal references

^CS1 Paragraph 1(a)(ii) of Schedule 3 to the Regulations

^CS2 Section 14(2)(b)(ii) of the Act and Paragraph 1(b)(ii) of Schedule 3 to the Regulations: estimates of run-on costs must cover a period of between six months and two years, but we are less likely to accept periods of less than two years

^CS3 Paragraph 1(a)(iii) of Schedule 3 to the Regulations

^CS4 Paragraphs 1(b)(iv) and 3(c) of Schedule 3 to the Regulations

^CS5 Paragraph 4(a)(i) of Schedule 3 to the Regulations