Pensions - Articles - Draft rules risk disproportionate impact on smaller schemes


Broadstone has expressed its concern that the DB funding code will impact smaller schemes disproportionately in its consultation response.

 In its executive summary, Broadstone says that it has serious concerns that strong employers with small schemes will face material additional costs as a result of the more stringent requirements.

 Moreover, Broadstone comments that the rigid definition of significant maturity could undermine long-term planning with the ‘hard and fast rules’ of the draft code failing to recognise the more volatile position of smaller schemes.

 It points to a danger that the prescription of lower risk strategies and funding targets based solely on affordability could hasten the demise of weaker employers. This is potentially to the detriment of member outcomes by removing reasonable flexibilities available to them within the current regime.

 Further herding of pension scheme investments into low-risk assets could also cause further disruption to the economy, adding to systemic risk and impacting on the government’s wider growth agenda.

 It calls for a proportionate, flexible approach for small schemes which are more likely to face ‘trigger’ events and will see a higher impact on running costs from the additional advice requirements.

 David Brooks, Head of Policy at Broadstone, commented: “We appreciate the government’s commitment to reducing the risk profile of Defined Benefit schemes. However, compelling schemes to adhere to the same strategy has risks in itself. We believe that the rigidity of the proposals are particularly worrying.

 “We are particularly concerned about the consequences for smaller schemes. They would face material additional running costs and the resources do not take into consideration their more changeable funding positions.

 “We are strongly calling for a more flexible, scheme-specific approach to help smaller schemes who are more likely to experience volatility around a set date without some additional consideration.”

 Broadstone FIS Consultation Response 

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