Laura McLaren, Head of DB Actuarial Consulting, Hymans Robertson, said: “At last we have an idea of how TPR sees the draft regulations and code translating into a statement of strategy. The proposed template sets clear expectations for the information a scheme must provide, and what will be compliant.
“However, this looks like a significant addition to valuations. The challenge will be to streamline compliance so it’s as easy as possible.
“The newly inserted clause in the regulations offered some hope TPR would use more discretion in how much information schemes need to provide. But it hasn’t cut requirements in many places. A scheme’s route to compliance will have the biggest effect on how much detail it provides. The example ‘Bespoke’ statement runs to over 20 pages, which underscores the appeal that Fast Track could have.
“All schemes face a lot of work to set out strategy in the format required. This is the first time trustees are required to include covenant information with a valuation. They’ll also need to say how the scheme is to provide benefits in the long term (buy-out, run-off or alternatives), and summarise the approach to de-risking between now and the end of the journey plan.
“It’s not clear how much value the extra disclosure requirements add in a funding landscape that’s changed since the process for these changes began. Only a small, and shrinking, number of schemes are poorly funded. Amidst the Mansion House agenda, increasingly focus is on endgame and surplus management rather than scheme funding.
“Schemes with the earliest in-scope valuations (later this year) will have their work cut out. They need TPR to quickly publish the final funding code, Fast Track parameters and other guidance.”
Steve Hitchiner, President, Society for Pension Professionals, said: “SPP welcomes publication of this consultation as another step along the journey to the new funding regime. We are particularly pleased that TPR has acknowledged the need to deliver the benefits of the statement of strategy without unnecessarily increasing trustee burden and cost for schemes, which are key concerns for many SPP members. The easements for smaller schemes are welcome, as is the provision of a standard template that schemes can populate.
The focus on proportionality in the consultation is also positive although we remain concerned that many schemes will inevitably need to provide lots of new information compared to current valuations, including in relation to covenant, which could prove burdensome for some. We will now consider the consultation carefully before responding next month.”
Emily Goodridge, Managing Director, Cardano, said: “The requirement for trustees to report covenant metrics demonstrates the continued focus of the Pensions Regulator (TPR) on the importance of covenant, as does TPR’s reiteration of both funding and investment risks as needing to be supported by employer covenant.
“We are supportive of TPR expecting trustees to look beyond the rating to consider the extent to which covenant can support scheme risks; and hope TPR makes clear the importance of a proportionate assessment of covenant across both Bespoke and Fast Track valuations, regardless of the information requirements for the Statement of Strategy.
“Whilst TPR speaks about a desire to be proportionate, there is a risk that an overly prescriptive approach pushes trustees into costly “box-ticking” based on a central scenario rather than really thinking about covenant risks and how best to manage these collaboratively with the sponsor.”
Simon Kew, Head of Market Engagement at leading independent consultancy Broadstone, commented: “We are pleased that TPR has taken onboard feedback from its original consultation on the Funding Code and is looking to make the compliance process for the new DB Funding Code less onerous for Trustees in relation to the Statement of Strategy.
“The regulatory landscape for Trustees is incredibly active at the minute so any steps TPR can take to ease the burden of each new initiative should be welcomed.”
“Ultimately, legislation and guidance should be designed in the best interests of savers and to improve member security, which can also include ongoing support from a sponsor, and so we await final guidance from TPR to see how this objective is achieved in this instance.”
Jon Forsyth, LCP Partner, commented: "The Statement of Strategy will be something that all schemes have to submit as part of valuations in the new funding regime, so early sight of a template as part of the consultation is well received. The new information that schemes must submit includes more on long term objectives, maturity, and covenant information.
“Much of this will be new to most schemes, and so trustees and their advisers will need to spend time getting familiar with these figures in the coming months, and some may need to take professional covenant advice for the first time. TPR's example of how they expect maximum affordable contributions to be evidenced is therefore also welcome. It's also worth noting that the first half of the Statement of Strategy covers the Funding & Investment Strategy (FIS) which needs sponsor agreement, so sponsors should also take note and ensure they understand what is required."
TPR Statement of Strategy Consultation
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