The Society of Pension Professionals (SPP) has responded to The Pensions Regulator’s (TPR) two consultations: the consultation on the draught defined benefit (DB) funding code of practice and the consultation on “fast track and our regulatory approach.”
In its responses, the SPP has identified areas that TPR should take into further consideration. According to SPP, the increased demands placed on schemes are out of proportion to the benefits the code offers; the heavy demands placed on trustees will drive up adviser costs significantly for many plans.
SPP also argues that the code is too long and complex and TPR should try to keep it as simple as possible given the necessity for lay trustees to comprehend the code. It should also remove any “advice” text to put the code’s main needs and concepts at the forefront.
According to SPP, although useful, not everyone agrees with TPR’s interpretation of the rules. TPR ought to collaborate with DWP to amend the regulations’ language so that it accords with its understandings in order to reduce any potential legal repercussions that such interpretational ambiguities might subject schemes to.
The suggested formulaic approach to covenant has various disadvantages and won’t work for many schemes. We propose a principles-based approach to covenant that keeps covenant at the core of the system while allowing trustees and covenant consultants more latitude.
Contrary to fast track, which lacks covenant requirements, the drafted regulations and code prioritise covenant in the process of travel planning. The SPP encourages TPR to make it extremely apparent that covenant is still a crucial factor in FastTrack-compliant schemes.
SPP says the final version of TPR should make it clearer that adherence to fast track does not automatically imply adherence to the code and that the code is of utmost importance.
Based on more recent market conditions, which schemes will be eligible for fast-track review should be determined again. This will aid TPR in understanding possible effects, as well as trustees, employers, and advisers.
Society of Pension Professionals president Steve Hitchiner says: “We support the fundamental objectives of the new funding regime, but some aspects require revision to make the proposals workable for all schemes. Covenant assessment should be proportionate to a scheme’s situation, and we suggest that this is made clearer in the code and further guidance. Many of the requirements could also be eased for certain schemes, such as those that are immature or Fast-Track compliant. Overall, we believe that TPR should aim for a code that is simpler, shorter and focussed on the key areas that inform scheme strategy.”
