The ACA has found strong support for the proposed seven key elements to be included in the promised second consultation on a new DB funding code, expected in the coming months.
The seven elements the Act will introduce are new powers for TPR, new events that must be reported to TPR relating to the sponsoring employer of a DB scheme, new requirement for trustees of DB occupational schemes to develop a strategy for ensuring that pensions and other benefits under the scheme can be provided in the long term, restriction on the right to a statutory transfer, new climate change governance and disclosure requirements, a framework for “collective money purchase schemes”, and provisions to enable pensions dashboards.
According to findings from the ACA’s 2021 Pension Trends Survey, with regards to the Fast Track and Bespoke framework, 96 per cent want a truly flexible bespoke option, and 72 per cent do not want to benchmark a bespoke option against fast-track. 89 per cent say trustees must retain absolute discretion over investment decisions, and 78 per cent say covenant should be recognised in funding requirements, even for significantly mature schemes.
In terms of how contributions and investment returns interact, 91 per cent want to account for anticipated additional returns in recovery plans, and 69 per cent believe contributions should not be required to bridge the gap between technical provisions and long-term funding targets. 54 per cent believe it should be possible to account for anticipated additional returns when determining future service contributions (26 per cent undecided).
ACA chair Patrick Bloomfield says: “The ACA’s survey underscores several messages that have already been fed back through TPR’s earlier consultation. What may come as a surprise is how unified and strong industry opinion is: ‘Bespoke’ must mean bespoke. ‘Fast Track’ journeys must not raid employers for cash that is already expected to come from investment returns.
“Presuming employer support ceases to exist once a scheme is mature wouldn’t be realistic. I’m confident TPR has heard these messages, but it’s a timely reminder as we head towards the next consultation and TPR’s parameters for Fast Track.
“As an industry, we find ourselves between a rock and a hard place on getting the new DB funding regulations finished, after the understandable delays caused by Brexit and Covid-19. TPR is clear that we’re to operate under the current regulations in the meantime, but the reality is an awkward limbo, with an eye to what is coming down the track. Having waited this long, the ACA urges TPR to continue listening to industry feedback so that its new funding code doesn’t repeat mistakes of the past, like the disastrous Minimum Funding Requirement.”
ACA pension schemes committee chair Peter Williams says: “It is clear that there is very strong support for maintaining genuine flexibility in the new funding regime, and the consensus is against using fast-track as a mandatory benchmark. One of the more detailed findings is the similarly strong support for maintaining the ability to use anticipated additional returns as part of a scheme’s recovery plan, which may be in some doubt – the consultation on the new Code of Practice on scheme funding will set out TPR’s proposals.
“Respondents were also clear that trustees should maintain absolute discretion over investment decisions – hopefully, the anticipated regulations on the funding and investment strategy provisions of the Pension Schemes Act will help to clarify that this will continue to be the case.”