On the go: The Pensions Regulator has announced its intention to launch two consultations – the first to be published this summer – as part of the watchdog’s plans to make the funding standard for defined benefit schemes clearer.
In ablog published on Thursday, David Fairs, the watchdog’s executive director of regulatory policy, analysis and advice, wrote that – depending on the legislative timetable – the first consultation is expected this summer.
It will focus on a clearer framework for DB funding, including what the regulator sees as a suitable long-term objective. The second consultation focuses on a draft code and is due to take place next year.
The regulator will consult on options for setting clearer parameters around journey plans and associated technical provisions based on scheme-specific factors, such as maturity or covenant strength, and in the context of the long-term objective.
The consultations will also cover proposals for clearer guidelines on acceptable lengths of recovery plans for different covenant strengths and on how this could work in practice. In particular, TPR will seek views on whether, all other things being equal, stronger employers should be required to fund technical provision deficits in a shorter period, particularly where they have the benefit of proportionately lower deficits.
The regulator will consult on ideas on how closed schemes should seek to progressively reduce their reliance on the employer covenant over time “and reach a position of low dependency by the time they are significantly mature”.
The announcement of the planned consultations follows the Department for Work and Pensions’ white paper on protecting DB pensions, published last year. In its white paper, the government highlighted the need for improvements in some key areas, such as greater transparency and accountability around the risks being taken on behalf of employers and members.
It recognised the need for trustees to focus on the long-term strategic issues for their scheme as the landscape matures. It also highlighted unhelpful grey areas.
Mr Fairs said: “This lack of clarity has led to a minority of schemes and employers abusing the flexibilities in the system and has made our job of proving non-compliance and taking enforcement action more difficult.”
