Commenting on the Regulations, John Dunn, Head of Pensions Funding and Transformation at PwC UK, said: “We are pleased to see that the Government has listened to the pensions industry and has attempted to adjust the balance in these regulations towards allowing pension schemes to take risk and benefit from the reward where this is appropriate. The Minster is making his views very clear in wanting to avoid ‘reckless prudence and inappropriate risk aversion’ and a picture is painted of those schemes that can afford to take investment risk, even if they are paying out high levels of pensions, being able to do so - something we welcome.
“Whether some schemes will follow this path will depend not just on these regulations but on the incentives to take more risk (for example, the ability for schemes to access surplus assets for the benefit of members and the sponsor) and the additional safeguards available to protect members’ benefits. So the picture is not yet complete and we will need to see the Government’s views, expected in the coming weeks in the form of a consultation, on these two key points before being able to assess how far the balance has really been tipped in favour of risk taking.”
Katie Lightstone, Partner in Employer Covenant and Restructuring at PwC UK, adds: “Today’s regulations make it clear that schemes can consider a much broader set of solutions for paying member benefits, many of which will have significant additional upsides. Critically, the most appropriate solution will depend on covenant strength. The regulations set out a new approach to assessing covenant, with a focus on the longer term outlook and insolvency likelihood, which will support trustees in this crucial decision.
“The biggest change from the consultation from a covenant perspective is the requirement for trustees to conclude on how long the covenant is ‘reasonably certain’ and to report this to The Pensions Regulator. This is a high bar, and making a call on when ‘reasonable certainty’ ends will be tricky. Agreement on this timeframe is likely to require significant input from sponsors as well as trustees.”
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