Scheme Funding

This is an exercise conducted by the Actuary, where the ability of a defined benefit scheme to meet its liabilities is assessed. This involves comparing the value of the assets and the liabilities, from which the Actuary recommends a future contribution rate. The agreed contribution rate is paid by the Company after deducting the contribution rate paid by the active members.

There are different methods for calculating the funding level. These include:

• Ongoing basis which assumes the scheme is continuing and all future benefits of the beneficiaries are paid.
• Discontinuance basis which assumes the scheme is wound up on the valuation date and all members’ benefits are secured with individual insurance policies or transferred to another pension arrangement.

The Actuarial Valuation Report is available on request from the Pensions Administration Team.

An actuarial valuation is usually undertaken every three years, but more often if there are significant changes to the scheme or the membership e.g. if the benefit structure is changed or the membership profile changes as a result of acquisitions or disposals. An approximate funding update (Actuarial Report) is also prepared by the Actuary in each of the intervening years between formal valuations.

This is how much the SCPF has to pay out in benefits to all members and their beneficiaries.

The Actuary analyses data on all SCPF members and uses it to make demographic assumptions, including when members retire, how long they live and whether they leave dependants.

The Actuary also makes a number number of financial assumptions such as the long-term rate of inflation, pay increases, and investment returns on the scheme’s assets.

The Pensions Regulator (TPR) requires a prudent view to be taken when calculating liabilities, and the assumptions are determined in this light.

The demographic and financial assumptions must be agreed by the Trustee and the Company, having taken advice from the Actuary.

These are usually taken at their market value as at the valuation date, as stated in the SCPF Annual Report of the Trustee and Financial Statements.

If there are insufficient assets to meet the liabilities, the Trustee must consult with the Company and prepare a recovery plan, to address the shortfall as quickly as possible. The recovery plan must be approved by TPR.

The annual Trustee’s newsletter (the Source) includes the Summary Funding Statement, which summarises the SCPF’s funding position.