Delegates attending the ‘Code + Covid – What now for long-term targets?’ panel session responded to two questions:
1. What has happened during 2020 to the technical provisions funding level of the largest scheme you are involved with?
2. In light of experience in 2020, how would you feel if the Funding Code were implemented without any change?
Among the 75 respondents to the first question, 24% had seen no change to their funding position, 41% flagged slight deterioration and 4% said that it had strongly worsened. 29% of delegates reported a slight improvement to their funding position.
On the question of how the Funding Code, implemented without any change, was perceived in the context of 2020, 21% were fairly or very positive, while 24% viewed it negatively and 11% very negatively. The remaining 44% were neutral on the issue.
Matthew Arends, partner and head of UK Retirement Policy at Aon, said: “Over two-thirds of schemes had seen either no change or a worsened funding position during 2020, despite the market recovery since April. It is therefore probably unsurprising that 35% of schemes viewed the Funding Code negatively.
“We expect that the 21% who viewed the Funding Code positively probably did so due to the introduction of the concept of Fast Track compliance, a route that reduces the cost of negotiating valuations but potentially requires higher contributions. This is therefore a simplified compliance option for those who want it.”
Matthew Arends continued: “This year’s experience clearly highlights that the Funding Code’s objective to drive better funding levels by a set date, and driven solely by scheme maturity, may well need to be reconsidered by TPR. We see the relatively negative views of the Funding Code as being primarily down to the conditions created by the COVID-19 pandemic. But this negativity may also come from the explicit statement by TPR that it will judge bespoke compliance relative to Fast Track.
“TPR expects all schemes to reach their long-term target by the time they are ‘significantly mature,’ which rules out simply taking longer to get to the target if asset performance is set back. That was the case this year, and it has created tensions.
“Many of the schemes which had seen their funding position deteriorate slightly or considerably in 2020 could also have seen a setback to their employer’s strength of covenant. That means the risk to members’ benefits remains heightened, especially when we are approaching a time of extreme economic uncertainty.”
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