Department for Work and Pensions (DWP) urged to promptly disclose final plans for the new DB funding regime.
Two consultations, one conducted by the DWP and the other by the Pensions Regulator (TPR), will determine the fate of the industry, according to LCP.
The proposed implementation date for the new regime is set for 1st October 2023, but LCP warns that without prompt action, it may become increasingly impractical. It argues that as schemes await further details of the new rules, they risk being left in a state of uncertainty and limbo.
LCP is calling on the government to publish their response and confirm expected timings to provide pension schemes and their sponsoring employers with a clear plan for the future. This is particularly crucial when the new funding regime may necessitate significant changes to existing funding and investment plans.
The DWP launched a consultation on the specific rules that would govern DB funding as a result of the 2021 Pension Schemes Act back in July 2022. The consultation was open for 12 weeks, with the deadline for responses being October 17, 2022.
But, the Government has yet to announce its response more than five months later. Two new pensions ministers have taken office since the regulations’ publication, and these changes to important persons are likely what caused the response time to be delayed.
The new legal structure, according to the laws’ detractors, would be extremely inflexible, providing inadequate flexibility to reflect the unique circumstances of particular schemes, and it could push schemes to de-risk prematurely.
Respondents have raised concerns about technical problems in the regulations, such as the ambiguous definition of “significant maturity,” which could lead to volatility. It is expected that the DWP will revise this definition in due course. However, in the meantime, pension schemes have limited information about the derisking timeframe they will be required to adhere to.
Since the DWP consultation was released, the Pensions Regulator (TPR) has conducted a second consultation on its proposed DB Funding Code, which concluded in December 2022. TPR has indicated that it may need to make further changes to the Funding Code after considering the outcome of the DWP consultation. Consequently, everything is currently on hold until the DWP finalises its regulations.
LCP partner Jon Forsyth says: “Whilst consultation is welcome, it is time for decisions to be made. We hope that the delay in responding means that the DWP has listened to the criticisms that we and others have made and will come up with a set of regulations which are much more flexible than the first version. But the industry cannot go on waiting indefinitely.
“These new rules could have big implications for schemes and the firms who stand behind them, and they need decent notice of what the new rules will be and when they will be implemented. TPR is also in a difficult position having to wait on DWP until it can finalise its own funding code, so it is vital that DWP unlocks this legislative limbo.”