Key points
- If your defined benefit (DB) scheme doesn’t meet its statutory funding objective, you need to work with the employer to put an appropriate recovery plan in place.
- Having agreed an appropriate funding target, you should agree deficit repair contributions to eliminate any deficit over an appropriate period, taking into account scheme and employer circumstances.
- Submit your recovery plan using our Exchange online service.
When you need a recovery plan
If your scheme doesn’t meet its statutory funding objective you need to work with the employer to put an appropriate recovery plan in place.
The statutory funding objective means that your scheme must have sufficient and appropriate assets to cover its technical provisions (accrued liabilities). This will enable you to manage the scheme with a prudent level of risk and to pay benefits as they become due.
Deficit recovery contributions
You should use the flexibilities available in the funding regime to agree a recovery plan with a level of contributions that takes account of scheme and employer circumstances.
When you consider the affordability of deficit recovery contributions (also known as ‘deficit repair contributions’), you should take into account a number of factors including the:
- forecast cashflow of the employer after essential business spend and investment
- employer’s plans for sustainable growth – its proposed uses of its free cashflow after essential spend and investment
- difference between temporary factors restricting cash availability and longer-term structural trends
- employer’s debt structure and debt service obligations
- employer’s capital structure and resources
- employer’s dividend policy.
Structure of the recovery plan
When considering the structure of a recovery plan (particularly the level of deficit recovery contributions) you should take into account the following matters:
- the value, terms and enforceability of any contingent security provided by the employer
- the likely benefits available from the scheme to members should the employer be subject to an insolvency event in the short term
- whether any changes are expected to the membership profile that could significantly affect funding, eg major retirements or bulk transfers in or out
- the impact on the employer and its plans for sustainable growth
- the impact of the assumptions used when setting the recovery plan not being borne out in practice
- the anticipated level of the Pension Protection Fund levy during the recovery plan period.
You should include in your recovery plan the assumptions you’ve used when determining how to eliminate the shortfall.
Submitting your recovery plan
Trustee toolkit online learning
The ‘DB recovery plans, contributions and funding principles’ module covers how to produce a recovery plan. You must log in or sign up to use the Trustee toolkit.
Detailed guidance
- Funding defined benefits code
- DB annual funding statements – go to our statements section