PWC
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PRACTICE NOTES
Defined benefit (DB) pension scheme deficit
A defined benefit (DB) pension scheme is in deficit when the value of its assets falls short of its liabilities.
There are several ways to assess the shortfall, for example:
on the scheme funding basis — required by the Occupational Pension Schemes (Scheme Funding) Regulations 2005, SI 2005/3377, and used to determine future contributions. If a shortfall is identified on this basis, the trustees and sponsoring employer must agree a recovery plan to clear it. For further information, see Practice Note: The scheme-specific funding regime — Recovery plan
on a solvency basis — liabilities measured as the premium an insurer would need to secure the scheme benefits in full (the ‘buy-out basis’)
on the Pension Protection Fund (PPF) basis — assets and liabilities valued using standard assumptions and the benefit structure set by the PPF
on an
Pensions
PRACTICE NOTES
THIS PRACTICE NOTE APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES
Purpose of scheme funding negotiations
Funding discussions typically take place between the employers that sponsor pension schemes and the trustees who run them. Trustees and sponsoring employers are generally required to agree the following funding matters:
the valuation of a defined benefit (DB) scheme’s assets and liabilities on a scheme‑specific basis (or, more precisely, the methods and assumptions used to determine the scheme’s ‘technical provisions’)
the statement of funding principles, being a written explanation of the trustees’ policy for achieving the statutory funding objective
if the valuation shows the statutory funding objective was not met at the effective date (that is, the scheme’s assets are less than its liabilities on a scheme‑specific funding basis), the recovery plan
the schedule of contributions, which broadly sets out the contributions the employer will be required to pay to the scheme in the
Pensions
PRACTICE NOTES
This practice guidance specifically concerns trust-based workplace pension schemes offering defined benefits
Statutory requirement for actuarial funding valuations
Trustees of private‑sector defined benefit (DB) workplace pension schemes that are registered with HMRC must, by law, carry out actuarial funding valuations no less than once every three years. The same obligation extends to any arrangement delivering defined contribution benefits where a DB guarantee underpins them. Moreover, schemes’ trust deeds and rules frequently embed an equivalent statutory requirement for actuarial funding valuations as standard practice...
Pensions
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