UK pension schemes are expecting the Defined Benefit (DB) Funding Code, currently in consultation, to affect the way they are run in the future, according to Aon.
Nearly 250 people attended a recent Aon webinar on the funding code consultation. When asked how much they anticipated the new funding regime will affect how their schemes are administered, 42 per cent of the respondents said they believed it would have either a moderate or major impact.
Only 10 per cent of respondents believed it would have little to no influence, while another 48 per cent said it would have some.
Aon partner and head of UK retirement policy Matthew Arends says: “It’s clear that the consultation on the DB Funding Code is concentrating minds at UK pension schemes with few believing that its effects will be negligible. The essence of the new code is simple: to ensure all DB schemes – including open ones – have a low-risk target and a plan to reach it by the time the scheme matures.
“However, Aon’s last Global Pension Risk Survey in 2021 showed that – even then – 81 per cent of schemes already had a low-risk target and that the average expected time to reach full funding on that measure was just 8.8 years.
“So does the new code add much that’s new and needed? It does provide a welcome degree of latitude in many areas but it also contains several prescriptive elements. These include the requirement to agree on most aspects of the plan with the sponsor, a new maximum risk check, the requirement to de-risk the target by a hard deadline based on the scheme’s duration of liabilities, and a much greater focus on quantifying the employers’ prospects and available cash, which are key determinants of the covenant’s strength.”
Arends adds: “During a period when they have been navigating new forms of volatility, we have also seen a growing burden on trustees and schemes – but the new funding regime would require further documentation to describe and monitor de-risking plans.
“The question remains whether the impact will be to drive better DB risk management, or whether it will simply be unnecessary interference in the well-established plans that schemes generally now have.”
