TPT Growth Plan valuation results set to trigger employers to re-evaluate their options – LCP

With the results of the TPT Growth Plan valuation as at 30 September 2023 expected imminently, LCP is urging organisations to take this opportunity to consider whether to continue underwriting risk within this multi-employer pension scheme.

LCP experts are expecting that this time’s Growth Plan triennial valuation results will show an improvement in the ongoing funding position (maybe even to a surplus depending on the assumptions chosen), and much lower exit charges, but higher annual expenses.

LCP predicts that organisations’ exit charges will have decreased by up to 75% over the last three years, presenting a once-in-a-decade opportunity for many organisations to exit at a low cost.

However, what works for one organisation may not work for another, so LCP advises employers to carefully weigh up the costs and risks before making any decisions.

LCP urges the following key points to be taken into consideration:

• Status quo: Organisations should look to understand their current membership, costs and risk exposure as continuing members of the Growth Plan.
• Alternatives: what alternatives are available? How might these reduce risk, and what might this mean for current and ex-employees?
• Orphan risks: When other employers leave, the plan still holds liabilities for benefits promised to their ex-employees, which means current employers take on both their own liabilities and those from former employers. At present, for every £1 of their own pension risk, continuing employers broadly face an additional £1 in legacy liabilities (so-called ‘orphan liabilities’). As more employers exit, this risk grows for those remaining, even if departing employers pay their exit debt fully.
• TPT benefit review: Exiting the scheme prompts an exit charge, which can take several months to calculate. In addition, there is currently uncertainty around exit charges due to the ongoing TPT benefit review – due to be heard by the Court in February 2025. So, while exiting now may lock in to favourable market conditions, the final debt will depend on the outcome of the case and will not be known for some time. The potential increase in the exit charge should be considered in decision-making.

Damian Bailey, Principal at LCP, said: “We expect this valuation to highlight opportunities for employers to exit the Growth Plan, and therefore to remove their exposure to future risks, at a much-reduced cost. This valuation offers employers a chance to reassess their situation, evaluate the benefits and drawbacks of different options, and fully inform decision-makers. It’s far better to make a well-informed decision based on the latest information than to continue with the same approach, assuming nothing has changed.”

Richard Soldan, Partner and Head of LCP’s Not-For-Profit Team said: “The change in financial conditions we’ve seen in recent years will have helped employers enormously. But the TPT benefit review does mean employers need to think carefully before exiting, in particular, to make sure they don’t have a nasty surprise down the line if the Court case goes against TPT.”