“Pressure to make Fast Track a stiffer test comes from the risk trustees ‘level down’ from stronger current funding plans. Set against this are COVID-19 market falls and post-Brexit recession risks. If schemes going down Fast Track are all chasing similar strategies there may also be systemic risks. All of this will need to be considered in how TPR sets the parameters within the Fast Track framework and the governance to keep them under review as financial conditions change. Setting ranges for certain parameters could
“As an alternative to Fast Track, we see the flexibility offered by Bespoke as essential, especially for schemes with atypical covenants and contingent support in place. However, we have some concerns over the extent of the flexibility that will be allowed. TPR’s enforcement must not evolve in such a way that this undermines the scheme specific nature of the Bespoke route and requires all schemes to fund to Fast Track Equivalence. It should be for trustees and sponsors to demonstrate their IRM governance supports their funding in a wholly scheme specific way.
With our research suggesting a significant proportion of schemes think they are more likely to go Bespoke, further clarity is needed on what TPR considers acceptable Bespoke valuations and the supporting evidence needed. Given enforcement is held back to the second consultation, we can’t fully critique the framework without understanding exactly what powers TPR will gain and how they will be used.
“Overall we support the principles underlying the new code. Forcing trustees and sponsors to agree a purposeful plan to get their scheme to run-off prevents schemes optimistically drifting in the hope of better funding. Many well-run schemes have been doing this for some time already. Indeed, those schemes with long term plans that have taken steps to reduce equity and rates risk, are those coming through current market conditions in relatively better shape. Nevertheless, trustees and sponsors will be watching closely for the all important detail still to come.”
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