HPS2 Summary Funding Statement
Commentary on HPS2 - Summary Funding Statement at 31 December 2022 (issued September 2023) and the XPS Pensions Scheme Funding Report on Actuarial Valuation at 31 December 2022 (issued 6 November 2023)
1. Summary Funding Statement at 31 December 2022
The Summary Funding Statement was prepared by the Trustee to include the key points from the Triennial Valuation Report, both dated at 31 December 2022 but issued later in the year. The summary was circulated to all HPS2 members in September 2023 in advance of the released version of the Triennial Valuation Report 6 November 2023. The Summary explains how a £19.5m surplus (104%) in the scheme funding position has developed (assets or investments being greater than current and future pension liabilities) resulting in the Pensions Regulator not requiring a deficit recovery plan to be set and the decision of Jacobs UK to cease contributions to the scheme.
The reference to “Winding Up” is included as the XPS Actuary who undertook the December 2022 Triennial Valuation is required to assess the solvency position of the scheme through the purchase or “buy out” of the scheme benefits by insurance policies. It might have been better to have titled the section “Solvency Buy Out Assessment” as to the uninformed it could suggest Jacobs are seeking to transfer responsibility for the scheme and its benefits which the Trustee indicates they are not. Transferring the scheme to an insurer is an option available to any direct benefit (DB) pension scheme such as HPS2 at any time, should the scheme be in a strong enough financial position to achieve an outcome acceptable to all parties. Many other DB schemes have recently found themselves in a surplus funding position for the same interest rate reasons as HPS2, so the “buy out” market is currently buoyant. More on this in the section below.
2. Scheme Funding Report on the Actuarial Valuation as at 31 December 2022
Scheme Funding Report on the Actuarial Valuation as at 31 December 2022
The Summary Funding Statement is we believe self-explanatory which is why the copy is attached above. However, having reviewed the Triennial Valuation Report, we believe it is helpful to expand on what the Summary does not say or include.
• The solvency assessment by the Actuary has been estimated to be at a £26.2m deficit (95%). Solvency analyses require the scheme to have a stronger funding position so as to afford the insurance policy buy out costs. The assessment was carried out without obtaining insurance policy quotes, so it was not based on firm benefit buy out costs. The fact that Jacobs UK have decided to cease contributions to the scheme seems to suggest that they were not mindful at the time to seek benefits buy out in the immediate future – ie the cost of benefits buy out unacceptably exceed the on-going costs of running the scheme,
• The Actuary assesses that since December 2022, the improved investment market conditions and changes to actuarial factors have impacted further to the extent that an additional £6m has been possibly added to the positive scheme funding position (ie a surplus of £25.5m or 105.7%). The projected funding level for the next Triennial Valuation in December 2025 is broadly similar ie to be in a small surplus. The Actuary estimates that the solvency funding position could improve by the next triennial valuation,
• In the period up to the next Triennial Valuation, the Trustee is required to monitor the Employer’s covenant and the funding of the scheme. If the scheme no longer meets its funding objective, the Trustee should consider remedial actions including reinstatement of a recovery plan and appropriate Jacobs UK contributions as well as the company resuming payment of scheme expenses (since the valuation, these have been paid by the scheme and not the company as was the case set at the prior 2019 Triennial Valuation),
• As noted at the prior 2019 Triennial Valuation, membership numbers very slightly differ again between the 2022 Valuation and the 2022 Trustee Annual Report, both dated 31 December. See the table below. We don’t know why this should be the case. As expected overall member numbers are reducing and the ratio of pensioners to deferred is increasing:
