Out-Law News 2 min. read
20 Dec 2022, 11:47 am
The UK Pensions Regulator (TPR) is consulting on plans to improve the security and sustainability of defined benefit (DB) scheme funding.
Last week, the regulator published a consultation on its new DB funding code of practice alongside a parallel consultation on proposals for a twin track approach to assessing valuations. It follows an earlier TPR consultation, published in March 2020, on a clearer, more enforceable DB funding framework.
Carolyn Saunders of Pinsent Masons said: “A new funding code has been on the agenda ever since the 2018 government white paper on ‘protecting defined benefit pension schemes’. Although the intervening period has brought pressure for TPR to change its approach in the light of unforeseen economic challenges – notably from Covid-19 and war in Ukraine – TPR has refused to be blown off course. However, this long-awaited consultation shows a real desire to draw on the industry’s experience in order to create something workable.”
TPR proposed a twin track approach to assessing valuations: ‘bespoke’ and ‘fast track’. The bespoke approach is intended to allow trustees to still have the flexibility to select scheme-specific funding solutions if the funding approach and actuarial valuation meet legislative requirements and follow code principles.
TPR said trustees may submit a bespoke submission if they want to take more risk than available under fast track, and can demonstrate that the total risk run by the scheme is supportable by the employer covenant and in line with the maturity of the scheme. Bespoke submissions can also be made if trustees cannot meet the fast-track recovery plan length based on demonstrable employer affordability constraints, or they have genuinely unique employer circumstances that necessitate a different approach.
The fast-track approach, meanwhile, aims to provide trustees with a simpler path to demonstrating compliance. The approach will act as a filter for assessment of actuarial valuations that are submitted to the regulator. If a valuation submission meets a series of fast-track parameters, TPR said it is unlikely to scrutinise it further and it is less likely that it will engage with trustees. “Fast Track is not risk-free for trustees. It represents our view of tolerated risk for a scheme and sets out a series of quantitative parameters that need to be met,” the regulator said.
Saunders added: “Having received 127 responses to its first DB funding code consultation, it is apparent that TPR has listened to some industry concerns – resulting, for example, in changing the fast-track regime to a filtering mechanism, instead of it being a benchmark for the bespoke regime.”
“These two new consultations now ask for responses to around 80 questions on the detail of how the regime should operate, and also promise further consultation, on, for example, updated employer covenant guidance. This level of engagement is to be welcomed and should go a long way towards allaying concerns around the implementation and flexibility of the funding regime,” she said.
Both the final Regulations and TPR’s code are currently planned to come into force in October 2023, although this date is subject to change. Schemes will only need to comply in respect of valuation dates on or after the date when the code takes effect.
03 Mar 2020