The process of submitting a funding proposal requires that trustees arrange for an actuary to carry out a valuation of the DB pension scheme's liabilities and assets at regular intervals and submit an actuarial valuation certificate to the Pensions Board outlining the funding position of the scheme. The date of each scheme valuation must be not later than 3 years after the last date of the previous valuation for that scheme.
If the actuary certifies that the scheme has insufficient assets to satisfy the Funding Standard, the schemes trustees must ensure that a funding proposal is forwarded to The Pensions Board with the actuarial funding certificate. The funding proposal must outline measures which ensure that the scheme could reasonably be expected to satisfy the Funding Standard by 2023 (in line with changes made in the Social Welfare and Pensions Act, 2012). Following approval of the funding proposals, schemes report to the Pensions Board on their compliance with the funding proposal on an annual basis.
The suspension of the Funding Standard in 2008 meant that trustees were not required to submit funding proposals, however some schemes continued to comply during this time. Therefore, not all schemes had to submit funding proposals by the 30th June deadline, depending on the last date of valuation, and some schemes may already have funding proposals in place and approved by the Pensions Board to deal with their deficits. With the reinstatement of the Funding Standard, approximately 300 schemes were due to send in funding proposals by the 30th June 2013. 212 of these schemes did not submit funding proposals.
The Pensions Board has, by now, formally written to the schemes that have not submitted funding proposals to ascertain their particular circumstances. The Board will decide what steps to take scheme by scheme on a measured basis and taking account of the individual scheme circumstances.
The reason for the delay in trustees responding will become clearer as the Pensions Board engages with schemes individually. The Funding Standard had been suspended since 2008 with the date extended on a number of occasions, and trustees need to adjust to the fact that the regulatory structure has been reinstated. A number of schemes have already confirmed to the Board that submission of their funding standard is imminent. There also appeared to be an unfounded expectation that the date would be extended again and this contributed to the number that missed the deadline.
Following engagement by the Pensions Board and once pension schemes have submitted their funding proposals, it will then be possible within the coming months for the Board to provide a more accurate indication of the level of under-funding in DB pension schemes. It will also allow for the impact of the many measures already introduced to assist DB schemes to be assessed, including the potential benefits to schemes of the use of sovereign annuities/bonds.