On the go: A long-awaited Department for Work and Pensions consultation into regulations underpinning the new defined benefit funding code is expected towards the end of July, putting the code on track to launch in late 2023, according to a spokesperson from the Pensions Regulator.
Speaking at a Pension Playpen event on July 5, TPR investment consultant Neil Bull said the DWP consultation into draft regulations can be expected “later this month”, paving the way for the regulator to launch its second consultation into the code “in autumn this year”.
The DWP consultation has long been seen as key to the progression of the DB funding code. David Fairs, TPR’s executive director of regulatory policy, analysis and advice, wrote in a blog in December 2021 that the regulator’s development of the code would be contingent on the DWP consultation process, as “it is critical [...] that the draft code and DWP’s draft regulations work together in a coherent and integrated way”.
“We want to take the opportunity to learn from the DWP’s consultation on the draft funding and investment regulations, which we expect to be published in spring 2022. And we want to ensure that stakeholders have ample opportunity to engage with and input into our proposals as they are developing,” he said at the time.
At the Pension Playpen event, Bull confirmed that the plan is still for TPR’s second consultation to launch in the autumn, and be laid in parliament after feedback has been considered, and eventually for the code to launch “towards the end of 2023”.
He also sought to allay fears, expressed during the first consultation, that the regulator’s planned “fast-track“ approach would in effect act as a benchmark for its “bespoke” option.
Part of the purpose of the fast-track route is to standardise the approach to investment risk, using the Pension Protection Fund’s stress-test to arrive at a standardised fast-track limit of “a 3 per cent deterioration in terms of funding”, Bull explained.
When asked whether the regulator was still considering the fast-track approach as a benchmark for the funding assumptions of the bespoke route — which it was feared might lead schemes opting for the latter to be unnecessarily cautious — Bull said that “thinking has evolved in that specific area”.
“Rather than saying ‘you need to explain your risk relative to fast-track’, fast-track is effectively our regulatory line,” he said.
“For the first scheme that decides to go to bespoke we’ll be looking at their funding and investment strategy [...] from the bottom up without, necessarily, reference to the risk to the fast-track.
“If a scheme is running twice as much risk as our regulatory line, you would expect we would be more interested and really want to understand that scheme in a way that perhaps we wouldn’t be [as worried about] if it was running a marginally higher level of risk,” Bull continued.
“So we are using fast-track as a regulatory line, but that doesn’t mean we need to benchmark things relative to that line in terms of compliance with the regime.”
