The Society of Pension Professionals has called the Pensions Regulator’s draft defined benefit funding code response “over the top” for the risks it seeks to address and wants the code to be “simplified”. 

 

The SPP said that the code as currently drafted would force all schemes to carry out detailed integrated risk management strategy planning at each valuation, regardless of their circumstances. The regulator’s existing guidance on IRM states that “as a minimum, trustees should consider conducting high level monitoring at least once a year”, with the frequency of monitoring depending on the materiality of risks and on scheme resources. 

 

The Society also criticises that DB schemes will be required to reach agreement on a journey plan with the employer and to include the documentation of various details relating to covenant metrics and investment strategy “both now and many years into the future”, while “actuaries will also need to consider whether the scheme meets the Fast Track tests – a new concept designed to help TPR focus its resources”. 

 

This work will result in higher costs for schemes as most will need external covenant advice, the SPP says, and schemes will also incur additional actuarial and investment advisor costs at future valuations. 

  

SPP president Steve Hitchiner said the proportionality of the new framework for all schemes was questionable. 

 

“The original intention of the new funding regime was to address a small number of cases where risks were not being appropriately managed, but these proposals are over the top in a world where surpluses are more common than deficits, and schemes are approaching the insurance market in record numbers,” Hitchiner said.  

  

“TPR should consider how the code can be simplified to target those schemes posing greater risk, without placing an additional compliance burden on the majority who are already well funded with low risk strategies.” 

  

Do you agree that the draft proposals are disproportionate to the risks in DB funding?