At a recent Aon webinar on the funding code consultation, almost 250 attendees were asked how material they thought the new funding regime would be to the way their schemes are run, with 42 percent of respondents indicating that they thought it would have either a moderate or a significant impact. A further 48 percent thought it would have some impact, while only 10 percent thought it would have little or no impact.
Matthew Arends, partner and head of UK retirement policy at Aon, said: “It’s clear that the consultation on the DB Funding Code is concentrating minds at UK pension schemes with few believing that its effects will be negligible. The essence of the new code is simple: to ensure all DB schemes - including open ones - have a low-risk target and a plan to reach it by the time the scheme matures. However, Aon’s last Global Pension Risk Survey in 2021 showed that – even then – 81 percent of schemes already had a low-risk target and that the average expected time to reach full funding on that measure was just 8.8 years.
“So does the new code add much that’s new and needed? It does provide a welcome degree of latitude in many areas but it also contains several prescriptive elements. These include the requirement to agree most aspects of the plan with the sponsor, a new maximum risk check, the requirement to de-risk the target by a hard deadline based on the scheme’s duration of liabilities, and a much greater focus on quantifying the employers’ prospects and available cash, which are key determinants of the covenant’s strength.”
Matthew Arends continued: "During a period when they have been navigating new forms of volatility, we have also seen a growing burden on trustees and schemes - but the new funding regime would require further documentation to describe and monitor de-risking plans. The question remains whether the impact will be to drive better DB risk management, or whether it will simply be unnecessary interference in the well-established plans that schemes generally now have.”
|
