Hymans Robertson is the latest consultancy firm to criticise draft regulations for defined benefit schemes.
It says it is “deeply concerned” about key parts of these proposals, and suggests the Department of Work & Pension’s “narrow and prescriptive” approach is “simply not fit for purpose across an industry with such a wide spectrum of circumstances”.
It says the rules as they stand will be detrimental to UK businesses and could potentially hamper economic growth, if firms are forced to top up pension payments unnecessarily rather than invest in their own future.
Despite these significant reservations Hymans says it broadly supports the principle behind these new rules: that DB schemes should be well funded and invested in defensive assets when members have retired.
Hymans said it had three key concerns about these proposed new rules
- That the draft regulations sacrifice scheme-specific flexibility, over-stepping into areas that should sit in the Regulator’s Code of Practice.
- That what a business can afford to pay to its pension schemes would be prioritised over how a business needs to invest to grow.
- The narrowness of the envisaged target investment strategies leaves no room for economically efficient investing and will supercharge systemic risks.
In its response Hymans Robertson says: “As drafted, the regulations go much further than what has been put forward in TPR’s 2020 consultation on DB funding. They also go far beyond the conclusions of the government’s Green and White papers. The narrow and prescriptive approach is simply not fit for purpose across an industry with such a wide spectrum of circumstances.
“The consequences of overly prescriptive regulation will be far reaching and detrimental to businesses, scheme members and economic growth. The amplification of systemic risks currently being witnessed in gilt markets has potentially dire consequences that will spill beyond pensions and into debt, mortgage and foreign exchange markets.
“A better outcome would be to redraft the regulations to remain broad and coherent with the current scheme-specific funding regime.
“TPR should be empowered to regulate through the ‘Fast Track and Bespoke’ model it has been warming the pensions industry to for the last two years. This would also make it easier for the industry and regulators to keep pace with the ever-changing financial and political climate.”
The comments from Hymans Robertson follow similar concerns raised by LCP and Willis Towers Watson earlier this week.
Commenting on its proposed new regime a spokesperson for the DWP said: “Our intention is to have better – and clearer – funding standards, whilst retaining the strengths of a flexible, scheme-specific approach. It is neither ‘one size fits all’, nor about micro-managing schemes. Every scheme will be treated on its merits.
“Millions of people rely on defined benefit schemes. Our new measures will help ensure they are protected for the long-term.”
