The Pensions Regulator has streamlined its requirements for statements of strategy in response to industry feedback, as its Defined Benefit Funding Code comes into effect.
The regulator launched a consultation earlier this year on the structure of the statement of strategy document, which each scheme is required to submit after a triennial valuation has been completed.
The initial proposal was heavily criticised by some in the industry as being too complex and potentially costly to complete.
With the new DB Funding Code now in force, consultants have welcomed TPR’s update to the statement of strategy rules, which has scaled back the level of detail it initially required schemes to include.
A full response to the consultation is expected in the winter.
Laura McLaren, head of DB scheme actuary services Hymans Robertson, said: “Amid widespread concerns the earlier proposals were disproportionate, inflexible and would be unduly onerous for schemes, we’re glad to see that TPR has taken that feedback on board.
“TPR has stuck with a suite of templates, but these are more streamlined with the detail it is proposing to collect scaled back. In an environment where an increasing number of DB schemes are well-funded and relatively low risk, the concessions directed at those in surplus and taking Fast Track are particularly welcome.”
However, McLaren added that completing the documents would still involve more work for schemes to set out their strategy and approach in the format required by the regulator. Schemes taking the “fast track” approach allowed by the new code will have a 17-page form to complete, while those on the “bespoke” path will have to complete 28 pages.
“Trustees and sponsors will need to factor this into upcoming valuation plans but at least now they have the certainty to meaningfully start to prepare,” McLaren said.
Changes to the proposal
While DB schemes will need to submit more information to the regulator than under the previous regime – including input from actuarial, investment and covenant advisers – there have been reductions in some areas.
Well-funded schemes, for example, will not have to report as much covenant data as under the initial proposal, and “fast track” schemes and some smaller schemes will not need to provide projected future benefit cashflow data.
Richard Soldan, partner at LCP and head of its DB funding group, praised the regulator’s changes, highlighting that it had also “recognised the position of open schemes more explicitly”.
Pauline McConville, senior consultant at XPS Group, also welcomed the regulator’s changes, which she said allowed schemes to “plan with more of an informed idea on what the final submission will expect”.
Digital reporting system
LCP's Soldan added that the final element of the code was still unclear as TPR has yet to introduce its new digital reporting system.
“It’s really important that TPR ensures the new system is easy to use, to ease the burden on schemes,” Soldan said.
TPR said it did not expect documents to be submitted before its new system was up and running, but those that want to make submissions can contact the regulator directly.
It also clarified that it “will not regard trustees or scheme managers as being in breach of the regulations if a delay in the launch of its digital system next year results in there being a gap between preparation of the funding and investment strategy and submission of the statement of strategy”.
Implementation dates
The new funding code was laid before parliament on 29 July, after a substantial delay due to the general election.
This means that the rules apply to schemes with valuation dates “on or after” 22 September, but the code itself will not be in force until late November, according to TPR.
There are 118 schemes with valuation dates that fall in between 22 September and the expected date of the code coming into force. TPR will write to these schemes this week, and confirmed today that it expected these schemes to comply with the new code when beginning their valuation processes.
TPR’s executive director of market oversight, Neil Bull, said: “This is a milestone moment for DB trustees, as after years of development, schemes with relevant valuation dates should now be referring to the new funding code, with the rest to follow on in the next two years.
“We have engaged extensively with industry in the development of our new DB funding code. Our expectations are now clear, and I hope trustees find the funding code guidance helpful as they navigate their way through either their first fast track or bespoke valuation.”
Further reading
TPR statement of strategy plan ‘asking too much’ (15 April 2024)
DWP paves the way for DB funding code from September (29 January 2024)
