TPR and DWP are still to resolve inconsistencies between the code and the regulations that will underpin it, and the industry awaits detailed guidance in several areas, such as the calculation of maturity and the format of the statement of strategy.
Against this backdrop, the leading pensions and financial services consultancy is calling for a number of suggested changes to keep compliance proportionate to risks and to support well planned scheme-specific approaches.
The case studies focus on the consequences that could arise if TPR doesn’t get the details right – and what could be done to mitigate these risks.
Commenting on the need for changes, Laura McLaren, Partner and Head of DB Actuarial Consulting, Hymans Robertson, says: “TPR still has to finalise details that could prove important in how successfully the code works in practice. “The rigidity of the DWP regulations and shortcomings in the code could lead to unintended negative consequences for many schemes. In recent months, concerns have grown over aspects such as the impact on open schemes. Neither DWP nor TPR has yet responded to industry concerns about what it will change to avoid these. The latest Mansion House encouragements to invest more in productive assets is a potential further shift in direction that the new regime would need to reflect.
“TPR has already nudged schemes a long way, so most have adopted good practice anyway. Many schemes are well-funded, de-risked and already on the path to buy-out, so we think most won’t fundamentally change their plans as a result of the new code. It would therefore be disappointing if the code distracts focus or disrupts well planned scheme-specific approaches because it’s not flexible enough, or because it adds a compliance burden that outweighs any long-term value.
“The code seeks to bring a minority of schemes into line with good practice – but does so at the risk of constraining schemes already doing the right thing and adding an unnecessary layer of compliance. TPR must find the delicate balance that enables all schemes to thrive.
“DWP and TPR must get the detail right. There are lots of moving parts, and the clock is ticking if TPR want to avoid yet more delays.”
About the case studies:
The case studies reflect TPR’s latest proposals for the DB funding code, coming into force for valuations from 1 April 2024. The industry expects TPR to announce the final regime later this year, when it will set out how it’s taken account of feedback and changes to the DB pensions landscape, including funding improvements and sentiment on issues such as open schemes.
DB trustees and sponsors should use the examples as a guide to the issues their schemes might face and to identify potential challenges ahead. Schemes with valuations next April will be keen to start preparing for when TPR’s code comes into force.
Hymans Robertson’s case studies DB funding code: what it means for you can be read here.
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