The Pension Schemes Bill poses a number of questions for scheme sponsors. Could contingent funding options be the answer?

Our viewpoint

On 7 January progress started once more on the Pension Schemes Bill when it returned to the House of Lords to receive its First Reading – a formality ahead of its republication on 8 January. The Bill amends legislation around a wide range of areas for pensions and will kick off big changes to the funding regime.

In particular, Trustees will need to agree with the employer a long-term “funding and investment strategy” and the scheme’s technical provisions must be determined in a way that is consistent with the scheme’s funding and investment strategy. While the Bill makes its way through the parliamentary process, we wait the Regulator’s much-anticipated first consultation on the DB Funding Framework, which they have indicated will be published in early March.

Pension scheme funding is already facing a number of challenges: uncertain financial markets, GMP equalisation and RPI reform. Add to this the changes in the funding code and corporates certainly have a lot to think about. Balancing stakeholder needs could be more challenging than ever and we expect many corporates to look for alternative ways of providing security to pension schemes with ever higher funding targets.

So what tools are available to scheme sponsors? And how does the regulator expect schemes to bridge the gap?

TPR gave a steer last year that contingent funding options could feature more and more in funding solutions:

We recognise that contingent assets or asset-backed funding might be appropriate more widely, for example, where cash flow is constrained but security is available, or if the employer has concerns over trapped surplus

2019 Annual Funding Statement

It seems that parent company guarantees, asset-backed contributions and escrow arrangements are the most popular options at the moment. However the market is evolving and a range of new or enhanced solutions are being launched. For example an increase in the offering and value of surety bonds and letters of credit might make these favourable options for corporates too.

Have a look at our report, A changing landscape, to see how some contingent funding options have worked in practice. You can download the report or view a 2 minute summary video of it here. The new powers for the Pensions Regulator are also big news for corporates and Jon Camfield considered this in his blog.

Contingent Funding Handbook: Emerging trends and market practice

Contingent Funding Handbook: Emerging trends and market practice


A great way for Trustees and Sponsors to protect member benefits as well as the shareholders and other creditors of the sponsoring employer.