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DB funding standard

The Pensions Authority monitors the financial strength of funded defined benefit (DB) pension schemes through the operation of the funding standard requirements under the Pensions Act.

The funding standard is a set of regulations that require funded DB pension schemes to build up and maintain enough funds to pay members their pension entitlements were the fund to be wound up. At least every three years the actuary must prepare an actuarial funding certificate (AFC) and submit this to the Authority.

An AFC indicates whether or not a pension scheme can meet all liabilities that have been accrued by members to the effective date of the certificate, were it to wind up at that date. These liabilities include the pensions payable to existing pensioners, the benefits payable to deferred members (people who have left service) when they reach retirement age, and the accrued benefits payable to active members assuming they left service at the effective date.

The scheme also needs to hold a risk reserve to allow for adverse future experience relating to the scheme’s assets and/or liabilities. The actuary must submit a funding standard reserve certificate (FSRC) to the Authority which indicates whether or not the scheme can meet this additional reserve.