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Scheme funding: Basics
The scheme funding provisions contained in the Pensions Act 2004 require trustees to prepare a statement of funding principles (SFP) for ensuring, amongst other things, that the statutory funding objective (SFO) is met. The SFO requires a defined benefit (DB) scheme to have “sufficient and appropriate assets to cover its technical provisions” (namely, from the EC Pensions Directive, “the amount required, on an actuarial calculation, to make provision for the scheme’s liabilities”). Trustees must also prepare a schedule of contributions. (for further details see, Scheme funding: Who sets the contribution rate?)
Trustees need to obtain either annual full actuarial valuations or a triennial valuation backed up by annual actuarial reports on developments. If the SFO is not met the trustees, with actuarial advice, will have to devise a “recovery plan” setting out proposals to make up the shortfall. The recovery plan must be sent to the Pensions Regulator. (for further details see, Scheme funding: Recovery plans)