Scheme Funding

Section 222 of the Pensions Act 2004 imposes the "statutory funding objective" on occupational pension schemes: every scheme is subject to a requirement (“the statutory funding objective”) that it must have sufficient and appropriate assets to cover its technical provisions. A scheme's “technical provisions” means the amount required, on an actuarial calculation, to make provision for the scheme's liabilities, calculated in accordance with prescribed methods and assumptions.

To evidence how this objective is being met, section 223 requires trustees or managers to prepare, and from time to time review and if necessary revise, a written statement of their policy for securing that the statutory funding objective is met. This is referred to in this Part as a “statement of funding principles”. The statement must record decisions on the methods and assumptions used to calculate the scheme's technical provisions and on the period and manner in which any funding shortfall is to be remedied — the basis for what is commonly called a recovery plan. Failure to comply with these duties can expose a trustee or manager who has not taken all reasonable steps to secure compliance to civil penalties.