Code of Practice on Funding

tPR interim response: January 2021


In March 2020, The Pensions Regulator issued the first consultation on a new approach to the funding of defined benefit pension schemes. The consultation was open for comments until 2 September 2020. Deloitte responded to the consultation and a summary of the key points of our response is attached.

tPR interim response

Since then, the Pensions Regulator has published an ‘interim response’ to the consultation on the new defined benefit funding code of practice.

The Regulator notes that there was “general support for the principles and regulatory approach proposed in the consultation”. However, it also notes the following concerns raised among the 127 responses:

  • Risks associated with where Fast Track guidelines would be set (such as some schemes ‘levelling down’ and an increase in the cost of DB pension provision for others).
  • Proposed Fast Track guidelines for open schemes.
  • Potential loss of flexibility (eg through benchmarking the Bespoke route against Fast Track).
  • An increased evidential burden if choosing to submit a Bespoke valuation.
  • The Bespoke route may be perceived as being ‘second-best’.
  • Reliance on covenant being watered down and what a greater trustee focus on covenant visibility would mean for schemes’ ability to rely on covenant beyond the medium term.

The above concerns are consistent with the issues raised by Deloitte (in the response document attached).

Deloitte Comment on the interim response

As expected, the Regulator has reiterated that the principles outlined in last year’s consultation will still hold firm in light of COVID-19 and Brexit impacts. However, we are encouraged that the Regulator has also acknowledged pension schemes may be in a very different situation (either from a funding position context and / or due to a change in the strength of the sponsoring employer’s covenant) versus where they were when the initial consultation document was drafted. Confirmation that we can expect the ultimate parameterisation of Fast Track metrics to be influenced by these recent events is helpful and we are hopeful that they ultimately provide more flexibility than previously trailed.

There is little new information in this interim response. It is unfortunate that there is now a revised (delayed) timeline for release of the second consultation. The second consultation will outline the proposed Fast Track guidelines amongst other things and the level at which these are set will determine whether schemes opt for the Fast Track or Bespoke funding route.

We can now expect the second consultation to be issued in the second half of 2021 meaning that the new funding regime is unlikely to be in place until the Spring of 2022 at the earliest.

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