Pension Funding, Investment and Scheme Governance
Funding standards
DB schemes must meet the Minimum Funding Standard (MFS) and hold a Funding Standard Reserve. The actuary certifies the actuarial funding certificate and the Statement of Funding Principles. A funding proposal is required where the MFS is not met, with a statutory timeframe for correction.
Investment governance
The trustee sets the SIPPs, defines investment objectives, and manages concentration, liquidity and currency risk. Fiduciary management and investment consultants must be overseen. IORP II adds prudent person rules and requires conflict of interest policies.
Scheme governance
Understand internal controls, risk management, outsourcing, data protection, cyber risk, and the own-risk assessment (ORA). The trustee board must have appropriate skills and expertise, and members must be informed through the annual report and benefit statements.
Traps
- Treating the MFS as a target rather than a minimum.
- Assuming the Funding Standard Reserve is optional.
- Confusing the SIPPs with the Statement of Funding Principles - one is investment, the other is funding.
- Overlooking conflicts of interest in fiduciary management arrangements.
Worked example
A scheme's actuarial liabilities are €100m and assets are €92m. The MFS requires 100% coverage. The actuary certifies a shortfall of €8m, and the trustee must agree a funding proposal with the employer within the statutory period, typically with a schedule of additional contributions.