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The Pensions Regulator will issue a “suite” of documents for defined benefit schemes to be ready for the new funding regime on 22 September this year, its interim director of regulatory policy, analysis and advice has said, including a consultation on strategy statements due out soon.
The regulator will consult on funding and investment strategy statements for DB schemes in the next few weeks, Louise Davey revealed at the Pensions and Lifetime Savings Association’s Investment Conference in Edinburgh on Wednesday.
“That is coming very soon, in the next few weeks. And what that does, that sets out the detail around the information and the data that we will expect to be provided as part of the new funding regime,” Davey said speaking on a panel session.
She added that the defined benefit funding code and fast-track parameters will be out in the summer, along with an updated impact assessment.
Later in the summer, TPR will then issue a consultation on covenant guidance to support the funding regime.
In the meantime, the DB funding regulations that were published last month were relaid in parliament earlier this week, “to address a couple of areas where the interpretation was not as intended”, according to Davey.
The various aspects of the regime are all due to be in force for 22 September this year, Davey explained. That is the date when the new funding regulations begin to apply to scheme valuations that are conducted on or after that date, even though the regulations will be in force from 6 April.
Industry has long been waiting for the DB code for greater clarity on the new funding regime. During that time, TPR has made attempts to align the code, originally heavily focussed on derisking, more with the government’s new productive finance agenda.
Whether trustees will follow suit is a different matter. Speaking on the same panel, Bobby Riddaway, a professional trustee at Capital Cranfield Trustees, said while there is much discussion around schemes rerisking, “I don’t think I have seen anything to give trustees confidence to rerisk”.
Most schemes are already well on the derisking path, save for the few that are open to new members.
“It will be interesting to see if any of the talk about flexibility to rerisk will be any clearer in the code than the regulations, because the regs are a bit quiet on that still,” he said.
While the government wants to encourage employers and schemes to rerisk in part by making surplus extraction easier, Riddaway thinks schemes that have not progressed far down the derisking path are more likely to decide not to go any further.
“It would take lot to persuade trustees to come back from a derisked position,” he noted.
Trustees could potentially rerisk if they have surplus. Stuart O'Brien, a partner at law firm Sackers, said the requirement for a low dependency investment allocation will not apply to surplus funding, according to the regulations.
“But quite what that’s going to look like and how much trustees are able to capitalise on that risk once they reach significant maturity, that’s very open-ended,” he added. “I wonder if it will prompt those currently on track to buy-in or buyout to reappraise if it’s the right thing to do to just invest for buyout.”
There was also a question on whether last week’s government consultation on surplus extraction conflicts with the DB funding code.
Davey said the regulator will work through that. “We think there will be flexibility, and what has been set out will be compatible with any surplus measures put in place by [the Department for Work and Pensions],” she said, stressing that even on a low dependency basis, TPR now assumes allocations of 30% to growth assets.
"There is significant headroom for rerisking within the fast-track parameters,” she added. “Half of schemes already fit [into fast track], and if schemes go down the bespoke route, they have more scope where it can be justified.”
However, the details of any surplus return proposals are unlikely to be finalised before the DB code comes into effect, she observed.
Will DB schemes stop derisking or even rerisk under the new funding regime?
