TPT Growth Plan funding improves, but employer contributions continue at similar levels

The Pensions Trust has released the results of the latest triennial valuation of the TPT Growth Plan. The funding level has improved on both ongoing and exit measures, but the introduction of an expense reserve for 2028 to 2033 means that deficit contributions will need to continue, with a typical employer likely to see their overall contributions to the Plan fall by around 15% compared to current levels.

With these marked improvements in funding levels, there has never been a better time for employers to revisit their options for this plan – current market conditions might not persist forever.

Employer exit debts have dropped notably, with some employers seeing reductions of as much as 75% over the past three years. There is still uncertainty caused by the ongoing TPT court case, and employers should recognise the potential for increased liabilities should the outcome be unfavourable, but this does not mean that employers need to wait before deciding whether to continue underwriting these risks.

Our perspective

As anticipated in our September blog, this valuation reports significant improvements in funding levels on both ongoing and exit measures. In fact, the Plan would have been in surplus on an ongoing basis, but the Trustee has introduced a £19m expense reserve, leading to a £16m reported deficit.

The introduction of this expense reserve means that deficit contributions need to continue, albeit with most employers expecting to see their total contributions reduced, perhaps by around 15%. 
The Plan has previously included an expense reserve; for example, the 2017 valuation included an expense reserve of £28m. This was removed at the 2020 valuation before being reintroduced here. The inclusion of an expense reserve again this time means that the Trustee is effectively requiring employers to cover both the Plan’s ongoing expenses of around £4.25m annually, plus an additional £2.1m annually for the next three years to build up a reserve aiming to meet Plan expenses from 2028 to 2033.

It is also worth noting that the Plan has increased the level of investment return it is targeting, which we expect will mean that it is running more investment risk. If it had not taken this step then, all else equal, we estimate that the average employer might have actually seen their total contributions increase by a quarter, rather than the decrease that has happened in practice.

The Plan's buyout deficit has improved significantly, from £141m in 2020 to £32m now. This measure impacts employer exit debts, which have dropped notably over the past three years. Some employers have seen exit debts reduced by about 75% since the 2021 valuation, making exits more affordable.

The TPT benefit review is underway, with a Court hearing scheduled for February 2025 to provide clarity on the administration of the Plan. The outcome is expected in the summer of 2025. In the meantime, if an employer withdraws from Growth Plan, TPT will require a pre-payment of 100% of the current exit debt, pending the outcome of the Court case.  Should the outcome be unfavourable, then TPT may require an additional payment, which could be material, before the final debt is certified and a full discharge provided to a withdrawing employer.