Bespoke pre-significant maturity with synthetic data
Please note: In this example, all text in [square brackets] will differ from scheme to scheme.Part 1 – Funding and investment strategy
Status
This funding and investment strategy (FIS) has been prepared by the [Trustees] of the [A.N. Example Pension] Scheme to satisfy the requirements of s221B of the Pensions Act 2004 and the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024. It sets out the trustees’ strategy (as agreed with the employer) for ensuring that pensions and other benefits under the [A.N. Example Pension Scheme] can be provided over the long term.
This FIS is dated [30 September 2023] and constitutes Part 1 of this statement of strategy, which is dated [30 September 2023]. It relates to the scheme’s actuarial valuation as at the effective date of [6 April 2023].
Long-term objectives
The trustees’ long-term objective is for the scheme to provide benefits in the long-term by way of [run-off].
Long-term funding strategy
With a view to achieving this objective, the trustees must have a strategy which follows the principle that the scheme must be at least fully funded on a low dependency funding basis (the minimum funding level) by its relevant date. [The trustees select the relevant date, which must be no later than the end of the scheme year in which the scheme’s actuary estimates that the scheme will reach significant maturity.]
In the actuarial valuation, the scheme actuary has estimated that, on a low dependency basis:
- the scheme’s maturity at the effective date of the actuarial valuation was a duration of [18.2] years in respect of accrued liabilities
- [the scheme’s maturity at the effective date of the actuarial valuation was a duration of [18.4] years when allowance is made for [6] years of future accrual]
- [the scheme is expected to reach significant maturity on [6 April 2044], when allowance is made for [6] years of future accrual]
Taking into account these matters and their long-term objective, the trustees:
- have chosen [6 April 2038] as their relevant date
- expect the scheme to have a duration of [b] years at the relevant date
- intend the scheme to have achieved a funding level of [100:100] on a low dependency funding basis by that date. This is their long-term funding target.
Long-term investment strategy
In setting this FIS, the trustees must take into account the objective that, on or after the relevant date, scheme assets to the value of the minimum funding level should be invested in line with a low dependency investment allocation. They must also follow the principle that the assets of the scheme must be invested in investments with sufficient liquidity to enable the scheme to meet expected cash flow requirements and make reasonable allowance for unexpected cash flow requirements.
In line with these requirements, at the relevant date, the trustees intend the assets of the scheme to be invested as follows (taking into account the objective that assets – other than surplus – should be invested in line with the low dependency investment allocation (LDIA)):
| Category | % of assets (LDIA) |
% of assets (surplus) |
|---|---|---|
| Growth | [15%] | [15%] |
| Matching | [60%] | [60%] |
| Hybrid | [25%] | [25%] |
Funding journey plan
The trustees must also plan how the scheme’s funding will progress, in accordance with its funding strategy, as it moves towards its long-term funding target.
In determining this funding journey plan, the trustees must follow the principles that the level of risk that can be taken in determining the actuarial assumptions used for the purposes of calculating the liabilities of the scheme as it moves along its journey plan is dependent on:
- the strength of the employer covenant
- subject to the above, the expected time to reach the relevant date
Current funding position
The scheme’s current funding, as at the effective date of the actuarial valuation, is as follows:
- [75%] on a low dependency funding basis
- [88%] on a technical provisions basis
- [70%] on a buy-out basis
Outline of funding journey plan
The trustees’ funding journey plan sets out how the scheme’s funding is intended to progress from its current position to the intended funding ratio of [100:100] on a low dependency funding basis at the relevant date of [6 April 2038].
[As the above figures show, the scheme currently has a deficit on a technical provisions basis. That means it does not currently have sufficient and appropriate assets to cover the amount required to make provision for its liabilities. Therefore, the scheme has a recovery plan, which sets out the steps to be taken to meet the statutory funding objective, and the period within which that is to be achieved. The recovery plan can be viewed as the first section of the scheme’s funding journey plan. This involves contributions from the scheme’s sponsoring employers to make good the technical provisions deficit.
The trustees’ expectation is that, once the scheme has reached 100% funding on a technical provisions basis, it should be in a position to be able to fully fund its liabilities on a low dependency funding basis by the relevant date purely on the basis of investment returns, without requiring further contributions from the sponsoring employers. Employer contributions will, therefore, only be required in respect of future accrual, unless this expectation is not met. This is the second part of the funding journey plan.]
Detail of funding journey plan
The detail of how the scheme is expected to progress towards full funding on a low dependency funding basis at the relevant date, as it moves along its funding journey plan, is illustrated by:
- [the summary of the recovery plan in Part 2 of this statement of strategy, which illustrates how the trustees intend the scheme to become fully funded on a technical provisions basis]
- how the discount rates used in calculating the scheme’s liabilities in the actuarial valuation, on a technical provisions basis, are expected to change over time and converge with the discount rates used in calculating the liabilities on a low dependency funding basis
- the differences between other assumptions used in calculating the scheme’s technical provisions and the assumptions used to calculate the scheme’s liabilities on a low dependency funding basis at the relevant date, as the extent to which these are inconsistent can affect the rate of discount rate convergence
[Further details regarding the trustee's funding journey plan are set out as follows:]
[The trustees' long-term objective is to run-off members benefits in line with a low dependency funding and investment strategy. However, the trustees may seek to reduce risk where opportunities present themselves. For example, the scheme has previously achieved a buy-in for a proportion of the pensioner liabilities when market conditions enabled them to purchase the insurance contract without any further strain on scheme funding. The trustees continue to monitor all available risk reduction opportunities.]
Discount rates
The trustees use a [horizon method] discount rate methodology to calculate the discount rates used to determine the scheme’s liabilities on a technical provisions basis.
[The discount rate is derived by applying a premium to [gilt] yields. The forward rates associated with these yields are set out in the table in Appendix 1.
The table in Appendix 1 also sets out the premiums applied to the underlying [gilt] yields for both a technical provisions and low dependency funding basis. Combined, these create the total forward discount rates used in calculating the scheme’s liabilities, on both a technical provisions basis and a low dependency funding basis. The trustees would also comment that:]
[The discount rates set out in this statement of strategy are those in respect of the non-insured liabilities only. The discount rates adopted for the insured pensioner liabilities, on all bases, are those that have been used for the calculation of the buyout liabilities. The value of these liabilities is also included with-in the value of the assets. For these purposes as all risks to the scheme in respect of these liabilities have been fully hedged the value of the assets is exactly equal to the value of the liabilities.]
[The trustees have set the technical provisions discount rates so that, by the time the scheme reaches the relevant date, they expect the overall basis will be at least equal to the low dependency funding basis.]
Other assumptions
The other assumptions used to calculate the scheme’s technical provisions at the effective date of the actuarial valuation are as follows:
| RPI, CPI and (where applicable) pay Increase assumptions |
[Please see the table in Appendix 1] | |
|---|---|---|
| Commutation assumptions | [Percentage of maximum tax-free cash commuted] | [90%] |
|
[Increase in technical provisions if no allowance for commutation] |
[£3,200,000] | |
| Mortality assumptions |
Expected age of death for male pensioners aged 65 at valuation date |
[87.5] |
| Expected age of death for female pensioners aged 65 at valuation date | [89.2] | |
| Expected age of death for future male pensioners aged 45 at valuation date | [88.7] | |
| Expected age of death for future female pensioners aged 45 at valuation date | [90.6] | |
[With the exception of discount rates, these assumptions have also been used to calculate the scheme’s liabilities at the relevant date on a low dependency funding basis.]
Review of the FIS
The trustees expect to review and, if applicable, revise this FIS no later than 15 months after the effective date of each subsequent actuarial valuation and as soon as reasonably practicable after any material change in the circumstances of the pension scheme or of the employer in relation to the scheme.
Confirmation of agreement
This FIS has been agreed by the trustees [and the employer(s)].
Part 2 – Supplementary matters
Status
This Part 2 of the Statement of strategy, dated [7 October 2023], has been prepared by [Trustee A, Trustee B, Trustee C, Trustee D, Trustee E and Trustee F] as trustees of the [A.N. Example Pension Scheme] to set out the following matters supplementary to the FIS, as required by section 221B(1) of the Pensions Act 2004:
- Trustee assessment
- Extent to which FIS is appropriate
- Implementation of FIS
- Implementation risks
- Actuarial information
- Estimate of scheme maturity
- Evidence of how that estimate will change
- Summary of actuarial valuation
- Summary of any related recovery plan
- Investment information
- Current level of investment risk
- Evidence on which that assessment is based
- Evidence of liquidity
- Level of investment risk in journey plan
- Evidence on which that assessment is based
- Covenant information
- Assessment of employer covenant
- Evidence on which that assessment is based
This information demonstrates and evidences how the FIS is appropriate for the scheme.
Trustee assessment
Extent to which the funding and investment strategy is appropriate
The trustees have carefully considered the extent to which the FIS is, or remains, appropriate, and have concluded that:
[The funding and investment strategy is appropriate.
In determining this strategy, the trustees have considered the scheme’s characteristics, particularly its relative immaturity and that it is open to future accrual. We have also considered the employer’s ability to support the scheme. In determining an appropriate funding and investment strategy, the trustees have considered advice provided by the scheme’s professional actuarial, investment and covenant advisers.
The scheme’s trustees have met and discussed the scheme’s funding and investment strategy with the scheme employer on a number of occasions, reaching an agreement which balances the requirements of the scheme to members’ benefits with those of the employer to achieve sustainable growth.]
Implementing the FIS
The trustees have carefully considered the extent to which the FIS is being successfully implemented. They have concluded that the FIS [is] being successfully implemented, as follows:
[While the requirement to determine a funding and investment strategy under law is new, the trustees implemented an integrated risk management approach to scheme funding in 2015, including a long-term objective and targeting a low dependency funding basis.
These were reviewed in the context of the new requirements introduced in the Pension Schemes Act 2021 and the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024 (the Regulations) ensuring the low dependency funding basis is consistent with the Regulations and choosing an appropriate relevant date at which to target low dependency.
While our funding position on a technical provisions basis still shows a deficit, and so the trustees recognise that our funding plan is not entirely on target, it has materially improved in recent years. Given this improvement, our relative immaturity and what the trustees consider to be an appropriate funding journey plan, we are confident in the successful implementation of our funding and investment strategy.
Our long-term objective is to run the scheme off. However, we conducted a buy in of pensioner members in 2018. These liabilities were backed by index linked gilts, providing hedging against interest rate movements. However, having noted competitive insurer pricing through which these liabilities could be bought in with no funding strain, the trustees decided to take advantage of the opportunity to also provide longevity risk protection in relation to these liabilities.
The trustees do not see this as inconsistent with our long-term objective but as a sensible risk management exercise. The trustees will monitor pricing in future to take advantage of opportunities where appropriate.]
Implementation risks
The main risks faced by the scheme in implementing the funding and investment strategy, together with details of how the trustees intend to mitigate and manage them, are as follows:
[The trustees recognise that the scheme requires an employer willing and able to support it, so a weakening of the employer covenant or, worse still, employer insolvency represent a significant scheme risk.
In mitigation, the trustees have a good level of access to the relevant information held by the employer, including formal agreement relating to the provision of management information. The trustees have good engagement with the employer, regularly meeting with key personnel and have information about the employer’s prospects based on management forecasts and details of sustainable growth plans provided.
The trustees have assessed the scheme’s reliability period to be around five years. However, affordability constraints mean that the recovery plan extends beyond, being eight years long.
We recognise that this represents a risk to our funding and investment strategy. To address this risk, the trustees have secured a property valued at £8 million for the benefit of the scheme. It should be noted that one of the triggers under which the property’s value can be accessed is non-payment of contributions. The trustees consider that this provides appropriate mitigation of the risk that a deterioration in employer covenant results in an inability to pay the agreed deficit reduction contributions.
Currently a key characteristic of the scheme is its relative immaturity, with a significant proportion of the scheme’s members continuing to accrue benefits.
Given the immaturity, we have agreed our investment strategy retains a degree of risk, with a significant proportion in growth-seeking assets expected to improve the funding position over time.
While the trustees have mitigated some funding risk through appropriate interest rate and inflation hedging strategies, we recognise that a relatively significant funding risk remains, determined on a one year, 95% value at risk (VAR) basis to be in the region of £11 million.
The trustees also recognise that considering the relative immaturity of the scheme, there is time in which to recover any negative impact of a downside event before the scheme reaches significant maturity.
In order to retain appropriate hedging of interest rate and inflation risk while retaining sufficient strategic allocation to growth assets, the trustees have allocated a proportion of the strategic asset allocation to a leveraged LDI portfolio. While we recognise the potential for collateral calls associated with this portfolio to represent a liquidity risk, taking into account the scheme’s relative immaturity, the trustees believe sufficient liquid assets are held to mitigate this risk.]
[In this context, the trustees have the following reflections on significant past decisions that are relevant to the FIS, including lessons learned that have affected other decisions, or may do so in the future:]
[The trustees conducted buy-in in 2018 of 40% pensioner members to mitigate some funding and demographic risks.
While this has reduced the interest rate risk and inflation risk in the scheme as well as the longevity risk, we recognise that it reduces the availability of assets to be held in liquid form in order to meet collateral requirements within our LDI portfolios and benefit payments. The trustees are comfortable that sufficient liquidity is being maintained, particularly given that contributions are still being paid into the scheme in respect of active members, but will be mindful of the potential need to reduce hedging through the use of LDI should we conduct future buy-ins.]
Actuarial information
Estimate of scheme maturity
The actuary estimates that the scheme’s maturity is a duration of [18.2] years in terms of accrued liabilities [and [18.4] years when allowance is made for [6] years of future accrual] as at [6 April 2023], being the effective date of the actuarial valuation.
This is expected to change over time, such that the actuary estimates that the scheme will reach significant maturity, with a duration of [12]1 years, as at [6 April 2044].
Evidence for how that estimate will change
[As the scheme is open to future accrual, [6] years of future accrual have been allowed for when calculating the date of significant maturity. If no other allowance is made for future accrual, trustees can evidence how the maturity of the scheme is expected to change over time using the undiscounted actuarial valuation cashflows for the next 100 years, as set out in Appendix 2.
These cashflows [separate out] insured benefits.]
Summary of actuarial valuation
The existing funding position of the scheme, as set out in the actuarial valuation, which has an effective date of [6 April 2023], is as follows:
| Technical provisions (£) |
Low dependency (£) |
Buy-out (£) |
|
|---|---|---|---|
| Total assets | [85,156,000] | [85,156,000] | [85,156,000] |
| Active member liabilities | [16,031,000] | [19,238,000] | [21,409,000] |
| Deferred member liabilities | [37,429,000] | [44,924,000] | [50,019,000] |
| Pensioner member liabilities | [23,961,000] | [27,647,000] | [29,445,000] |
| Insured liabilities | [19,630,000] | [19,630,000] | [19,630,000] |
| Expense reserves | [-] | [1,836,000] | [2,017,000] |
| Total liabilities | [97,051,000] | [113,275,000] | [122,520,000] |
| Funding level | [87.7%] | [75.2%] | [69.5%] |
The proportion of the liabilities on a low dependency funding basis that are linked to inflation is [75%].
[The trustees use a [horizon method] discount rate methodology to calculate the discount rates used to determine the scheme’s liabilities on a technical provisions basis.
The discount rate is derived by applying a premium to [gilt] yields. The forward rates associated with these yields are set out in the table in Appendix 1. This table also sets out the premiums applied to the underlying [gilt] yields for both a technical provisions and low dependency funding basis. Combined, these create the total forward discount rates used in calculating the scheme’s liabilities, on both a technical provisions basis and a low dependency funding basis.
Details of other assumptions used by the trustees to calculate the scheme’s technical provisions as at the effective date of the actuarial valuation can also be found in the table in Appendix 1.]
Summary of any related recovery plan
[The scheme has a deficit on a technical provisions basis at the valuation date, so has a recovery plan. The recovery plan sets out the steps to be taken to meet the statutory funding objective, and the period within which that is to be achieved, as follows:
| Date recovery plan certified | [30 September 2023] |
|---|---|
| Date recovery plan commenced | [6 April 2023] |
| Date recovery plan ends | [6 April 2031] |
| Technical provisions deficit at valuation date | [£11,895,000] |
| Assumed investment outperformance | [£2,085,000] |
| Is there allowance for post-valuation experience? | [No] |
|
[N/A] |
| Deficit repayments for each of the first 20 years after the valuation date | |
|---|---|
| Year 1: | [1,500,000] |
| Year 2: | [1,500,000] |
| Year 3: | [1,500,000] |
| Year 4: | [1,500,000] |
| Year 5: | [1,500,000] |
| Year 6: | [1,500,000] |
| Year 7: | [1,500,000] |
| Year 8: | [1,500,000] |
| Year 9: | [0] |
| Year 10: | [0] |
| Year 11: | [0] |
| Year 12: | [0] |
| Year 13: | [0] |
| Year 14: | [0] |
| Year 15: | [0] |
| Year 16: | [0] |
| Year 17: | [0] |
| Year 18: | [0] |
| Year 19: | [0] |
| Year 20: | [0] |
| Total deficit repayments scheduled at any time thereafter | |
| Year 20+: | [0]] |
Investment information
Current level of investment risk
Based on the scheme’s strategic asset allocation, the trustees have assessed the level of risk in the scheme’s current investment strategy (relating to the actuarial valuation to which the FIS relates) as [£11 million], determined as set out below.
Evidence on which that assessment is based
The trustees’ determination of the level of investment risk is based on [their strategic asset allocation], using the following approach:
| [Value at risk (VAR) using: | |
|---|---|
| Type of stress test | [Liabilities and assets] |
| Liability basis | [Technical provisions] |
| Percentile | [95%] |
| Period (Example) | [1 year(s)] |
In making their assessment, the trustees have also taken into account the following:
Current strategic asset allocation
The strategic allocation of assets within different categories of investment under the scheme’s current investment strategy is as follows:
| [Type of Asset | Allocation (%) |
|
|---|---|---|
| Category | Sub-category | |
| UK Fixed interest Government bonds | Short | [2%] |
| Medium | [4%] | |
| Long | [10%] | |
| UK (non-Government) fixed interest investment grade | Short and Medium | [2%] |
| Long | [4%] | |
| Overseas fixed interest investment grade | Short and Medium | [0%] |
| Long | [0%] | |
| Sub-investment grade | - | [1%] |
| Private debt | - | [1%] |
| UK inflation linked Government bonds | Short | [2%] |
| Medium | [9%] | |
| Long | [25%] | |
| UK quoted equities | - | [5%] |
| Overseas quoted equities | Developed market | [25%] |
| Emerging market | [6%] | |
| Unquoted / private equities | - | [6%] |
| Property | - | [4%] |
| Deferred / immediate fully insured annuities | - | [20%] |
| Diversified growth funds | - | [3%] |
| Cash and net current assets | - | [-30%] |
| Absolute return | - | [0%] |
| Asset-backed contributions | - | [0%] |
| Other | - | [1%]] |
The above strategic asset allocation is expected to provide an expected long-term return of [6.5%] per annum.
Hedging
[The scheme’s current strategic investment allocation includes the following hedging targets as a proportion of assets which [includes] insured annuities:
| Type of Hedging | Target Hedging Ratio |
|---|---|
| Interest rate: | [80%] |
| Inflation: | [80%] |
The scheme’s strategic investment allocation includes the following currency hedging targets as a proportion of pounds sterling:
| Type of Overseas Equities | Target hedging ratio |
|---|---|
| Overseas developed markets: | [50%] |
| Overseas emerging markets: | [50%]] |
Evidence of liquidity
In principle, the scheme must have sufficient liquidity to enable the scheme to meet expected cash flow requirements and make reasonable allowance for unexpected cash flow requirements.
The scheme’s current strategic investment allocation complies with this by:
- allocating [22%] of scheme assets to highly liquid investments, which they reasonably expect to be able to call upon to meet unexpected liquidity needs at very short notice without incurring any significant penalties or other losses
- allocating only [12%] of scheme assets to investments which the trustees deem to be illiquid
The trustees have concluded that this level of liquidity should be sufficient, taking into account that the scheme’s strategic investment allocation does include leveraged investments that could result in unexpected demands on liquidity. This conclusion is based on:
- [Estimates of the liquidity demands of leveraged investments]
- [Short-term cash flow estimates]
Level of investment risk in the journey plan
The trustees have considered how the level of risk taken by the scheme in relation to its investment strategy will vary as it moves along its journey plan.
By the time the scheme reaches its relevant date, the trustees intend that the investment risk should be [15%], determined as set out under 'Evidence on which that assessment is based' below.
The trustees’ strategy is to approach de-risking of the scheme investments by:
- [adopting time-based triggers]
- [adopting funding-based triggers]
A description of how the trustees expect these de-risking triggers to ensure the scheme achieves a low dependency investment allocation by the relevant date is as follows: [The time-based trigger ensures that the scheme does not get behind on its plan to get to a low-dependency investment allocation by the relevant date and the funding-based triggers allow for the possibility of locking in funding gains when appropriate over the journey plan.]
The trustees intend to target an investment return of [5%] at the relevant date, which they consider to be appropriate given the targeted level of investment risk.
Evidence on which that assessment is based
The trustees have assessed that the above level of risk at the relevant date is appropriate, based on the following approach:
| [Value at risk (VAR) using: | |
|---|---|
| Type of stress test | [Liabilities and assets] |
| Percentile | [95%] |
| Period | [1 year(s)] |
| Liability basis | [Low dependency funding]] |
Covenant information
Assessment of employer covenant
The trustees have assessed the strength of the employer covenant as at [30 September 2023], as being sufficient to enable them to reasonably rely on:
- maximum affordable contributions (after deducting deficit reduction contributions) of [£2,989,750] over a reliability period of [5] years
- [the value of the contingent assets referenced in Appendix 3]
Evidence on which that assessment is based
In making the above assessment, the trustees have considered the following:
Professional covenant advice
[The trustees have received and considered professional covenant advice.]
Assessment of supportable risk
The trustees consider that the strength of the employer covenant is sufficient to support the level of risk implied by the funding and investment strategy over the reliability period, taking into account the principles around the appropriate level of risk set out in TPR’s code and guidance.
[In making this assessment, the trustees have considered a range of risk metrics. They have considered the size of any potential deficit in combination with the likelihood of such an occurrence. They have also considered how this compares to the covenant support available. These risks are not necessarily consistent with short term risk valuation techniques, such as the use of value at risk (VAR) outlined elsewhere in this statement, particularly in the context that active members continue to accrue future benefits. The trustees have also taken into account the potential upside risk from the funding and investment strategy and the potential additional security that the upside risk presents.]
In reaching this conclusion, the trustees have worked on the basis of:
| Reliability period | [5 years (at least)] |
|---|---|
| Maximum affordable contributions (after deficit recovery contributions) over the reliability period | [£2,989,750] |
| Value ascribed to contingent asset(s) | [£8,000,000] |
For more information, see the example summary of the trustees’ analysis of maximum affordable contributions.
Employer
[The trustees’ assessment of the strength of the employer covenant is based on some or all of the statutory employers and their subsidiaries (if any).]
Employer cash flows
The trustees have assessed the employer’s cash flows to be:
| Free cash flows / proxy | Amount (£) |
|---|---|
| Prior year actual | [£2,400,000] |
| Current year forecast | [£2,500,000] |
| Year 1 forecast; | [£2,300,000] |
The trustees have assessed these cash flows based on:
[adjusted cash flows]
Employer liquidity
The trustees have assessed the employer liquidity to be:
- Current balance sheet liquidity [£0]
[Reasonable alternative uses of cash
The trustees also recognise that the employer’s ability to support the scheme will be affected by other factors, including the reasonable alternative uses of its cash flows. The trustees have obtained the following information on the employer’s reasonable alternative uses of cash:
| Alternative use | Prior year actual | Current year forecast | Year 1 forecast |
|---|---|---|---|
| Investment in sustainable growth | [£0] | [£500,000] | [£500,000] |
| Shareholder returns | [£250,000] | [£250,000] | [£250,000] |
| Payments to other defined benefit pension schemes | [£0] | [£0] | [£0] |
| Other | [£0] | [£0] | [£0] |
In addition, the trustees would comment that [investment in sustainable growth relates to new production lines, which are forecast to improve employer production and cost efficiency in year 2 onwards. Increased production and cost savings are expected to increase sales and market position and will improve covenant support.]
Contingent assets
[The trustees have taken contingent assets into account in their assessment of the strength of the employer covenant. Details of each contingent asset are set out in Appendix 3.] The trustees rely on the value of these contingent assets, assessed as [£8,000,000]:
| Reliance | Amount (£) |
|---|---|
| [To support taking funding and investment risk] | [£3,500,000] |
| [To allow for a longer recovery plan for affordability reasons] | [£4,500,000] |
Covenant outlook: reliability and longevity periods
When considering how long it is reasonable to rely on the strength of the employer covenant, the trustees have concluded that:
- the employer’s reliability period as at least [5] years
- the employer’s longevity period as at least [9] years
Employer consultation
The trustees hereby [confirm] that they have consulted the employer(s) of the [A N Example Pension Scheme] in the preparation of this Part 2 of the statement of strategy.
[The employer has not asked to include any comments in this document.]
Review of Part 2
Part 2 of this statement of strategy will be reviewed, and if necessary revised, by the trustees as soon as reasonably practicable after any review of the FIS, whether or not the FIS is revised.
Signature of chair of trustees
This document is signed by the chair of trustees on behalf of the trustees of the scheme.
[Trustee A] on [7 October 2023]
[Trustee A]
Footnote for Part 2
- 1 This is the duration for significant maturity proposed in the draft funding code, this may differ in the final published code.
Appendix 1: Spreadsheet example of scheme assumptions over next 100 years
| Forward rates | ||||||
|---|---|---|---|---|---|---|
| Year | Discount rates | Assumption curves | ||||
| Underlying [gilt curve] yields (excluding additions) | Additions to curve - technical provisions | Additions to curve - low dependency | RPI | CPI | Pay increase | |
| 1 | [3.61%] | [2.00%] | [0.50%] | [3.57%] | [2.77%] | [4.57%] |
| 2 | [3.23%] | [2.00%] | [0.50%] | [3.57%] | [2.77%] | [4.57%] |
| 3 | [3.12%] | [2.00%] | [0.50%] | [3.57%] | [2.77%] | [4.57%] |
| 4 | [3.12%] | [2.00%] | [0.50%] | [3.55%] | [2.75%] | [4.55%] |
| 5 | [3.18%] | [2.00%] | [0.50%] | [3.52%] | [2.72%] | [4.52%] |
| 6 | [3.30%] | [2.00%] | [0.50%] | [3.51%] | [2.71%] | [4.51%] |
| 7 | [3.47%] | [2.00%] | [0.50%] | [3.53%] | [3.33%] | [4.53%] |
| 8 | [3.66%] | [2.00%] | [0.50%] | [3.57%] | [3.37%] | [4.57%] |
| 9 | [3.97%] | [2.00%] | [0.50%] | [3.63%] | [3.43%] | [4.63%] |
| 10 | [4.16%] | [2.00%] | [0.50%] | [3.68%] | [3.48%] | [4.68%] |
| 11 | [4.32%] | [2.00%] | [0.50%] | [3.72%] | [3.52%] | [4.72%] |
| 12 | [4.43%] | [2.00%] | [0.50%] | [3.73%] | [3.53%] | [4.73%] |
| 13 | [4.51%] | [2.00%] | [0.50%] | [3.72%] | [3.52%] | [4.72%] |
| 14 | [4.53%] | [2.00%] | [0.50%] | [3.68%] | [3.48%] | [4.68%] |
| 15 | [4.52%] | [2.00%] | [0.50%] | [3.62%] | [3.42%] | [4.62%] |
| 16 | [4.46%] | [0.50%] | [0.50%] | [3.53%] | [3.33%] | [4.53%] |
| 17 | [4.39%] | [0.50%] | [0.50%] | [3.43%] | [3.23%] | [4.43%] |
| 18 | [4.29%] | [0.50%] | [0.50%] | [3.33%] | [3.13%] | [4.33%] |
| 19 | [4.18%] | [0.50%] | [0.50%] | [3.23%] | [3.03%] | [4.23%] |
| 20 | [4.07%] | [0.50%] | [0.50%] | [3.14%] | [2.94%] | [4.14%] |
| 21 | [3.95%] | [0.50%] | [0.50%] | [3.05%] | [2.85%] | [4.05%] |
| 22 | [3.83%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 23 | [3.71%] | [0.50%] | [0.50%] | [2.92%] | [2.72%] | [3.92%] |
| 24 | [3.59%] | [0.50%] | [0.50%] | [2.86%] | [2.66%] | [3.86%] |
| 25 | [3.48%] | [0.50%] | [0.50%] | [2.82%] | [2.62%] | [3.82%] |
| 26 | [3.37%] | [0.50%] | [0.50%] | [2.79%] | [2.59%] | [3.79%] |
| 27 | [3.26%] | [0.50%] | [0.50%] | [2.76%] | [2.56%] | [3.76%] |
| 28 | [3.16%] | [0.50%] | [0.50%] | [2.74%] | [2.54%] | [3.74%] |
| 29 | [3.07%] | [0.50%] | [0.50%] | [2.72%] | [2.52%] | [3.72%] |
| 30 | [2.97%] | [0.50%] | [0.50%] | [2.71%] | [2.51%] | [3.71%] |
| 31 | [2.89%] | [0.50%] | [0.50%] | [2.71%] | [2.51%] | [3.71%] |
| 32 | [2.81%] | [0.50%] | [0.50%] | [2.71%] | [2.51%] | [3.71%] |
| 33 | [2.75%] | [0.50%] | [0.50%] | [2.72%] | [2.52%] | [3.72%] |
| 34 | [2.69%] | [0.50%] | [0.50%] | [2.73%] | [2.53%] | [3.73%] |
| 35 | [2.64b] | [0.50%] | [0.50%] | [2.76%] | [2.56%] | [3.76%] |
| 36 | [2.60%] | [0.50%] | [0.50%] | [2.79%] | [2.59%] | [3.79%] |
| 37 | [2.57%] | [0.50%] | [0.50%] | [2.83%] | [2.63%] | [3.83%] |
| 38 | [2.55%] | [0.50%] | [0.50%] | [2.88%] | [2.68%] | [3.88%] |
| 39 | [2.53%] | [0.50%] | [0.50%] | [2.93%] | [2.73%] | [3.93%] |
| 40 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 41 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 42 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 43 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 44 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 45 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 46 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 47 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 48 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 49 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 50 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 51 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 52 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 53 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 54 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 55 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 56 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 57 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 58 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 59 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 60 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 61 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 62 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 63 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 64 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 65 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 66 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 67 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 68 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 69 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 70 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 71 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 72 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 73 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 74 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 75 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 76 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 77 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 78 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 79 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 80 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 81 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 82 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 83 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 84 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 85 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 86 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 87 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 88 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 89 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 90 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 91 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 92 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 93 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 94 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 95 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 96 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 97 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 98 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 99 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
| 100 | [2.52%] | [0.50%] | [0.50%] | [2.98%] | [2.78%] | [3.98%] |
Appendix 2: Spreadsheet example of scheme cashflows over next 100 years
| Annual cash flows | |||||
|---|---|---|---|---|---|
| Year | Active members | Deferred members | Pensioner and dependent members |
Insured | Future accrual |
| 1 | [206,000] | [479,000] | [1,242,000] | [828,000] | [8,595] |
| 2 | [261,000] | [605,000] | [1,284,000] | [856,000] | [21,718] |
| 3 | [316,000] | [734,000] | [1,327,000] | [885,000] | [39,549] |
| 4 | [373,000] | [867,000] | [1,371,000] | [914,000] | [62,233] |
| 5 | [431,000] | [1,001,000] | [1,416,000] | [944,000] | [89,872] |
| 6 | [490,000] | [1,138,000] | [1,461,000] | [974,000] | [123,000] |
| 7 | [549,000] | [1,275,000] | [1,506,000] | [1,004,000] | [137,000] |
| 8 | [609,000] | [1,414,000] | [1,551,000] | [1,034,000] | [152,000] |
| 9 | [669,000] | [1,553,000] | [1,595,000] | [1,063,000] | [167,000] |
| 10 | [729,000] | [1,691,000] | [1,639,000] | [1,092,000] | [182,000] |
| 11 | [788,000] | [1,829,000] | [1,680,000] | [1,120,000] | [197,000] |
| 12 | [847,000] | [1,967,000] | [1,720,000] | [1,147,000] | [212,000] |
| 13 | [906,000] | [2,103,000] | [1,757,000] | [1,171,000] | [226,000] |
| 14 | [964,000] | [2,237,000] | [1,790,000] | [1,193,000] | [241,000] |
| 15 | [1,021,000] | [2,370,000] | [1,818,000] | [1,212,000] | [255,000] |
| 16 | [1,077,000] | [2,500,000] | [1,840,000] | [1,227,000] | [269,000] |
| 17 | [1,131,000] | [2,628,000] | [1,855,000] | [1,237,000] | [283,000] |
| 18 | [1,184,000] | [2,752,000] | [1,862,000] | [1,241,000] | [296,000] |
| 19 | [1,235,000] | [2,873,000] | [1,858,000] | [1,239,000] | [309,000] |
| 20 | [1,285,000] | [2,989,000] | [1,844,000] | [1,229,000] | [321,000] |
| 21 | [1,332,000] | [3,100,000] | [1,816,000] | [1,211,000] | [333,000] |
| 22 | [1,376,000] | [3,204,000] | [1,775,000] | [1,184,000] | [344,000] |
| 23 | [1,417,000] | [3,301,000] | [1,720,000] | [1,146,000] | [354,000] |
| 24 | [1,454,000] | [3,390,000] | [1,649,000] | [1,099,000] | [364,000] |
| 25 | [1,487,000] | [3,468,000] | [1,562,000] | [1,041,000] | [372,000] |
| 26 | [1,515,000] | [3,534,000] | [1,461,000] | [974,000] | [379,000] |
| 27 | [1,536,000] | [3,586,000] | [1,347,000] | [898,000] | [384,000] |
| 28 | [1,551,000] | [3,621,000] | [1,221,000] | [814,000] | [388,000] |
| 29 | [1,557,000] | [3,638,000] | [1,089,000] | [726,000] | [389,000] |
| 30 | [1,554,000] | [3,633,000] | [952,000] | [635,000] | [389,000] |
| 31 | [1,542,000] | [3,607,000] | [816,000] | [544,000] | [386,000] |
| 32 | [1,520,000] | [3,557,000] | [684,000] | [456,000] | [380,000] |
| 33 | [1,488,000] | [3,484,000] | [561,000] | [374,000] | [372,000] |
| 34 | [1,446,000] | [3,389,000] | [450,000] | [300,000] | [362,000] |
| 35 | [1,396,000] | [3,273,000] | [353,000] | [235,000] | [349,000] |
| 36 | [1,338,000] | [3,141,000] | [270,000] | [180,000] | [335,000] |
| 37 | [1,275,000] | [2,995,000] | [202,000] | [135,000] | [319,000] |
| 38 | [1,207,000] | [2,840,000] | [148,000] | [99,000] | [302,000] |
| 39 | [1,137,000] | [2,678,000] | [106,000] | [70,000] | [284,000] |
| 40 | [1,060,000] | [2,498,000] | [74,000] | [49,000] | [265,000] |
| 41 | [988,000] | [2,332,000] | [50,000] | [33,000] | [247,000] |
| 42 | [916,000] | [2,166,000] | [33,000] | [22,000] | [229,000] |
| 43 | [846,000] | [2,004,000] | [21,000] | [14,000] | [212,000] |
| 44 | [778,000] | [1,846,000] | [13,000] | [9,000] | [194,000] |
| 45 | [712,000] | [1,693,000] | [8,000] | [5,000] | [178,000] |
| 46 | [649,000] | [1,546,000] | [5,000] | [3,000] | [162,000] |
| 47 | [588,000] | [1,406,000] | [3,000] | [2,000] | [147,000] |
| 48 | [531,000] | [1,273,000] | [1,000] | [1,000] | [133,000] |
| 49 | [477,000] | [1,147,000] | [1,000] | [1,000] | [119,000] |
| 50 | [427,000] | [1,029,000] | - | - | [107,000] |
| 51 | [380,000] | [919,000] | - | - | [95,000] |
| 52 | [337,000] | [817,000] | - | - | [84,000] |
| 53 | [297,000] | [722,000] | - | - | [74,000] |
| 54 | [260,000] | [636,000] | - | - | [65,000] |
| 55 | [227,000] | [556,000] | - | - | [57,000] |
| 56 | [196,000] | [484,000] | - | - | [49,000] |
| 57 | [169,000] | [419,000] | - | - | [42,000] |
| 58 | [145,000] | [360,000] | - | - | [36,000] |
| 59 | [123,000] | [307,000] | - | - | [31,000] |
| 60 | [104,000] | [261,000] | - | - | [26,000] |
| 61 | [87,000] | [219,000] | - | - | [22,000] |
| 62 | [72,000] | [183,000] | - | - | [18,000] |
| 63 | [59,000] | [151,000] | - | - | [15,000] |
| 64 | [48,000] | [123,000] | - | - | [12,000] |
| 65 | [39,000] | [99,000] | - | - | [10,000] |
| 66 | [31,000] | [79,000] | - | - | [8,000] |
| 67 | [24,000] | [62,000] | - | - | [6,000] |
| 68 | [18,000] | [47,000] | - | - | [5,000] |
| 69 | [14,000] | [36,000] | - | - | [3,000] |
| 70 | [10,000] | [26,000] | - | - | [3,000] |
| 71 | [7,000] | [19,000] | - | - | [2,000] |
| 72 | [5,000] | [13,000] | - | - | [1,000] |
| 73 | [3,000] | [9,000] | - | - | [1,000] |
| 74 | [2,000] | [6,000] | - | - | [1,000] |
| 75 | [1,000] | [4,000] | - | - | - |
| 76 | [1,000] | [2,000] | - | - | - |
| 77 | [1,000] | [1,000] | - | - | - |
| 78 | - | - | - | - | - |
| 79 | - | - | - | - | - |
| 80 | - | - | - | - | - |
| 81 | - | - | - | - | - |
| 82 | - | - | - | - | - |
| 83 | - | - | - | - | - |
| 84 | - | - | - | - | - |
| 85 | - | - | - | - | - |
| 86 | - | - | - | - | - |
| 87 | - | - | - | - | - |
| 88 | - | - | - | - | - |
| 89 | - | - | - | - | - |
| 90 | - | - | - | - | - |
| 91 | - | - | - | - | - |
| 92 | - | - | - | - | - |
| 93 | - | - | - | - | - |
| 94 | - | - | - | - | - |
| 95 | - | - | - | - | - |
| 96 | - | - | - | - | - |
| 97 | - | - | - | - | - |
| 98 | - | - | - | - | - |
| 99 | - | - | - | - | - |
| 100 | - | - | - | - | - |
Appendix 3: Information on contingent assets
[Security
| Type of security | [Security over property – fixed charge over land and buildings owned by the employer’s parent and not used in the primary business of the employer.] |
|---|---|
| Maturity date | [Evergreen] |
| Value ascribed | [£8,000,000] |
| Value cap | [None] |
| Triggers for access to value | [Participating employer insolvency] [Non-payment of contributions] [Crystallisation of investment risk] |
| Triggers for termination | [With trustee agreement] |
| Reliance placed on contingent asset | [The trustees have placed reliance upon the security held to support the recovery plan being three years longer than the reliability period of the employer as the value of the security is sufficient to cover the deficit repair contributions (DRC) over the three-year period of the recovery plan which extends beyond the reliability period. The trustees have also placed reliance on the contingent asset for the purposes of supporting funding and investment risk. However, this is limited to the total value of the contingent asset less the amount used to support the longer recovery plan (ie £3.5 million).] |