On the go: Employers have expressed support for some elements they would like to see outlined in the second consultation on a new defined benefit funding code, which is expected in the next few months.
The vast majority (96 per cent) of the 212 employers quizzed by the Association of Consulting Actuaries said they wanted “a genuinely flexible bespoke option” when it came to the new code’s fast-track and bespoke framework.
In March 2020, the Pensions Regulator announced plans for a split approach to DB funding in which schemes will have to opt between two choices: a prescriptive fast-track funding arrangement that would be subject to less regulatory scrutiny, or a bespoke arrangement that would face stricter oversight.
Seventy-two per cent said they did not want to benchmark a bespoke option against fast-track, while 89 per cent said it must remain clear that trustees have absolute discretion over investment decisions.
Elsewhere, 78 per cent of respondents said covenant should continue to be recognised in funding requirements, even for significantly mature schemes.
Regarding how contributions and investment returns interact, more than nine in 10 (91 per cent) respondents said they want to be able to allow for anticipated additional returns in recovery plans.
Sixty-nine per cent said contributions should not be required to bridge the gap between technical provisions and long-term funding targets, where additional returns are anticipated.
Meanwhile, 54 per cent of respondents said it should be possible to allow for anticipated additional returns while determining future service contributions.
Patrick Bloomfield, chair of the ACA, said it may come as a surprise how unified industry opinion is.
“‘Bespoke’ means bespoke. ‘Fast track’ journeys must not raid employers for cash that is already expected to come from investment returns,” he said.
“Presuming employer support ceases to exist once a scheme is mature wouldn’t be realistic. I’m confident TPR has heard these messages, but it’s a timely reminder as we head towards the next consultation and TPR’s parameters for fast-track.”
Bloomfield said the industry was “between a rock and a hard place” getting the new DB funding regulations finished after they were delayed by Brexit and Covid-19.
“TPR is clear that we’re to operate under the current regulations in the meantime, but the reality is an awkward limbo, with an eye to what is coming down the track,” he continued.
“Having waited this long, the ACA urges TPR to continue listening to industry feedback, so that its new funding code doesn’t repeat mistakes of the past, like the disastrous minimum funding requirement.”
Peter Williams, chair of the ACA pension scheme committee, added: “It is clear that there is very strong support for maintaining genuine flexibility in the new funding regime, and the consensus is against using fast-track as a mandatory benchmark.
“One of the more detailed findings is the similarly strong support for maintaining the ability to use anticipated additional returns as part of a scheme’s recovery plan, which may be in some doubt — the consultation on the new code of practice on scheme funding will set out TPR’s proposals.”
Williams continued: “Respondents were also clear that trustees should maintain absolute discretion over investment decisions. Hopefully the anticipated regulations on the funding and investment strategy provisions of the Pension Schemes Act will help to clarify that this will continue to be the case.”
