TPT Growth Plan – it’s time to review your options

The Growth Plan is a multi-employer pension scheme operated by TPT Retirement Solutions (TPT). The results of the triennial valuation of the Growth Plan are imminent, which should act as a trigger point for employers to review their options.

Many employers have exited from the Growth Plan in recent years, reducing their risks. With an improved funding position on the horizon, and reduced cost of exit, we expect that trend to continue. Employers need to consider their options, understand the pros and cons, and follow the right process.

Growth Plan valuation results are imminent

We are expecting the TPT Growth Plan triennial valuation results at 30 September 2023 to arrive in organisations’ email inboxes soon.

In my view, this should act as a trigger for employers in the Growth Plan to review the results and their options, and decide whether to continue to underwrite the risks involved in this ‘last man standing’ hybrid pension scheme.

Good news

Based on improvements in market conditions, together with contributions (and exit payments from exiting employers) paid into the Plan over the last three years, we expect good news this time around.

In particular we anticipate that the September 2023 valuation results will disclose that:

• the ongoing funding position is likely to show a surplus (so no further deficit contributions would be required from participating employers over the next three years) and
• exit payments or ‘debts’ will have reduced materially – we have seen some organisations’ exit debts reduce by around 75% since the 2021 valuation.

Even if deficit contributions are no longer needed, we expect that TPT will update annual expense contributions, which will likely come into effect from 1 April 2025 if a similar pattern is followed to last time.

Orphan liabilities

We understand that there are around 700 employers currently participating in the Growth Plan. This number has reduced substantially from around 1200 in 2014. Those employers who have already left have either become insolvent, leaving the remaining employers to pick up the tab, or made a conscious decision to exit and pay their exit debt.

When employers exit, benefits previously promised for their ex-employees remain a liability of the Plan. This means that current employers are bearing risks not only for their own employees and ex-employees, but also in respect of the legacy liabilities for those ex-employees of employers who have already left.

We estimate that around half of Growth Plan liabilities are now ‘orphan’ and no longer have a sponsoring employer. This means that for each £1 of pensions risk an employer is exposed to in relation to their own liabilities, they are exposed to another £1 of risk in relation to former employers’ liabilities. As further employers exit the Growth Plan, this risk becomes more pronounced for those that remain, even if the exiting employers pay their debt in full.

Other risks

Employers will need to understand and be clear on the risks associated with continuing as an employer in the Plan.

Defined benefit pension plans like the Growth Plan are designed by their nature so that sponsoring employers (not members) bear the risks associated with paying members’ pensions many years into the future.

When we see clients decide to pay their exit debt to the Growth Plan, it is generally because they wish to reduce their organisation’s exposure to defined benefit risks, including the orphan risks above.

Employer choices

Current Growth Plan employers essentially have two options:

1. Continue as a sponsoring employer:

• annual deficit contributions are likely to be lower than before (and may go to zero)
• pay annual expenses associated with scheme administration
• accept the orphan risk
• continue to underwrite ongoing pension risks.

Or

2. Exit the Plan and pay exit debt:

• give notice to leave the Plan
• employees’ (and former employees’) pensions for service to date will continue to be met by the Plan
• any future expenses, deficits and risks will be met by remaining employers
• you would no longer be able to use the Growth Plan for current employees.

Pros and cons

Of course, what’s right for one organisation won’t necessarily be right for another. Ultimately the question comes down to the balance between cost and risk – is the additional cost of exit worth the level of risk reduction that will be achieved.

Employers need to understand the options in the context of their own circumstances and the pros and cons with each choice.

We have seen lots of employers exit in recent years and, with exit debts reducing, we expect more employers to exit, pay their debt and leave the Growth Plan in order to reduce risk.

Managing exit risks

As mentioned above, leaving the scheme means that an exit debt would become payable. However, it can take up to six months for the exit debt to be calculated, meaning employers won’t know the final cost at the point they exit.

And whilst exiting now would mean “locking in” to current favourable market conditions, the exit debt cannot be finalised until the outcome of a TPT Court case is known, intended to clarify Growth Plan benefits (discussed below). This could be a reasonably significant additional payment – potentially a significant proportion of the original debt – and should be factored into any decisions.

The above means that exiting employers would need to trigger their debt before having certainty around the final debt amount. LCP can provide more information on the possible outcomes of the court case and financial implications. There is also a process available which can be used to establish the debt figure up front before committing to paying.

Those employers paying into the Growth Plan for current employees will need to switch future contributions to an alternative pension plan – there are straightforward options, but this does need consideration.

When the facts change…

The latest triennial valuation results are due imminently. These will set out new employer contributions, most likely from April 2025, and also provide an indication of each employer’s exit debt.

Current markets mean that Growth Plan is better funded than for some time and exit debts are at historical lows.

This valuation presents an opportunity for employers to consider their new circumstances, quantify the pros and cons of each option and educate decision makers on the available options.

In my view, it’s better to take a conscious decision in the light of the new facts than carry on doing what you’ve always done assuming nothing has changed.

Please do get in touch with us if you wish to discuss your particular circumstances.