The Pensions Regulator’s (TPR) statement of strategy consultation is nearing its conclusion, with closing set for tomorrow.
Concerns over the proposal are widely held among industry experts. There is a consensus that standardisation is important, but in order to properly balance compliance with practicality, considerable experts say changes may need to be made to the proposed regulations.
Broadstone chief actuary David Hamilton says: “The current proposals suggest that schemes will be required to make huge data submissions, through a system that is yet to be determined, to generate a relatively unwieldy and unappealing document. We have suggested a number of simple changes in our consultation response, consistent with proportionate and effective regulation, that will remove hundreds of data entries and the need to produce more figures or detailed justification where it is not applicable or not necessary.
“We are keen that constructive discussions between trustees and employers about scheme funding and end-game strategies are not undermined by unnecessarily restrictive or heavy-handed submission requirements.”
Isio director and head of research & development Iain McLellan says: “We agree with TPR’s proposal that the Statement of Strategy should be in a standard format. This should make it easier for trustees to complete and for TPR to analyse. However, the format proposed is too long and complex, with over 150 data items required, many of these duplicated with items already supplied to TPR via other routes. To be useful for trustees and TPR, we suggest that less is more.
“The purpose of the Statement should drive its form and if the purpose is purely to provide information to TPR, then it needs to be in a simple, standard format, either a spreadsheet or an online form with drop-down options. We also believe that the Statement for those schemes choosing the ‘fast-track’ compliance route should be very short – with little or no additional information needed beyond a statement that the fast-track approach has been complied with. The whole point of ‘fast-track’, which we support, is that it will come with much less regulatory interaction – the Statement of Strategy should reflect this too.”
Hymans Robertson head of DB actuarial consulting Laura McLaren says: “We’re glad to see TPR publish detailed guidance for the statement of strategy, but we’re concerned that completing the template as proposed will create a lot of extra work. We estimate a typical scheme could add 20% to its valuation costs as a result.
“TPR can make completing the template easier, with pre-populated sections or automation where practical. But our main concern is around the amount of detail TPR is requesting. This would be onerous for schemes and disproportionate to what TPR needs to regulate them, especially in an environment with many well-funded DB schemes targeting buy-out.
“As a submission for the regulator’s eyes only, the statement of strategy has little value for the schemes themselves beyond compliance. It would be helpful to know what TPR, as a ‘proportionate’ regulator, is going to do with all the information that schemes will submit.
“The requirements for Fast Track in particular could be scaled back. Asking for so much information misses the point of what’s meant to be a regulatory ‘filter’. A better approach could be that, once TPR has screened schemes it wishes to investigate further, it can ask for more information where relevant.”
Sacker’s partner Eleanor Daplyn says: “We welcome TPR’s emphasis on taking a proportionate approach and desire to “streamline” the information collected through the new Statement. Accompanied by an example of what a Statement might look like, there are due to be four Statement templates, depending on a scheme’s maturity, and which of the two funding tracks, Fast or Bespoke, a scheme is running along.
“Whilst some concessions are made for smaller schemes, for most DB schemes, the Statement looks set to require extensive actuarial, investment and covenant input. With schemes having to delve deeper into the detail, there is a real risk of increasing the burden on already stretched schemes. Given the volume of DB scheme information gathered through the existing valuation process and annual scheme return, it remains to be seen just how useful TPR will find this new level of granularity.
“In addition, although having Statement templates seems sensible, it is essential that trustees are given sufficient flexibility to tailor the information (where appropriate) to reflect scheme specifics. In particular, a lingering area of concern relates to open DB schemes, as they will need latitude to explain their particular circumstances.”
Barnett Waddingham principal and senior consulting actuary Mark Tinsley says: “The new regulations prescribe a lot of the information to be included in the new statement of strategy document. TPR also has an objective to become a data-led regulator and scheme funding valuations are one of the most appropriate times to collect data on schemes. In this context, much of the information that TPR proposes to collect appears reasonable, though all schemes face additional costs compared to the current funding regime.
“However, there are several instances where the information being requested does not appear proportionate, either because the amount of work may be significant or because it is difficult to see how the information could be useful to users of the statement of strategy (including TPR). We therefore encourage TPR to reduce the compliance burden, especially for very-well funded and low-risk schemes.”
Cardano director Chris Heritage says: “The Statement of Strategy, Funding Code of Practice and Fast Track / Bespoke frameworks are all inherently linked, and so without the full picture it is difficult to fully assess the example Statement of Strategy as laid out. It is crucial that trustees receive clear guidance and ongoing messaging to help them balance prudence and pragmatism.
“Our view is that the Statement of Strategy is predominantly a risk filter tool for TPR, rather than a risk management tool for trustees as it is primarily focused on provision of quantitative data, without overarching strategic commentary. We are concerned that in some areas, the Statement of Strategy asks for more than trustees might otherwise consider, which could mean an additional administrative and cost burden on trustees and/or potential for unnecessary tension between trustees and sponsors.
“In other areas, the information required falls short of best practice and we have concerns that trustees may believe they are adequately assessing covenant when all they are doing is providing TPR with data.
“When assessing covenant in particular, this requires consideration of a wide range of qualitative and quantitative metrics reflecting the idiosyncratic nature of each scheme’s covenant. Neglecting factors that are not easily entered into a spreadsheet will put members’ benefits at risk.”