The Pensions Regulator has finalised guidance on how trustees can meet their obligations under the new funding code, which effectively comes into force today.
The regulator has responded to criticism from the industry, and reduced the data trustees need to supply to meet the requirements of this new code. However consultants still warned that even with these revisions this is likely to be a time-consuming process for trustees, particularly those who need to make valuations under the ‘bespoke’ regime.
This new funding code applies to all DB schemes whose actuarial valuation dates are effective on or after 22 September 2024.
To comply with the new requirements, schemes must submit a statement of strategy. To support trustees TPR has published new material on this specific funding and investment strategy, setting out their expectations on how schemes comply with these requirements.
The new DB funding code was laid in Parliament on 29 July 2024 and will come into force in late November.
TPR’s executive director of market oversight, Neil Bull says: “This is a milestone moment for DB trustees, as after years of development, schemes with relevant valuation dates should now be referring to the new funding code, with the rest to follow on in the next two years.
“We have engaged extensively with industry in the development on our new DB funding code. Our expectations are now clear, and I hope trustees find the funding code guidance helpful as they navigate their way through either their first Fast Track or Bespoke valuation.
“We’ve listened to feedback and reduced the data ask of schemes in certain situations such as for well-funded and small schemes. Now, ahead of the launch of a new digital submission platform in the spring, we’re giving schemes information to help them prepare in advance.”
Consultants welcomed this additional guidance. Laura McLaren, head of DB scheme actuary services at Hymans Robertson says:
“With the regulations and funding code going live for valuations, at last we know how TPR intends the statement of strategy to operate.
“Amidst widespread concerns the earlier proposals were disproportionate, inflexible and would be unduly onerous for schemes, we’re glad to see that TPR has taken that feedback on board.
“TPR has stuck with a suite of templates, but these are more streamlined with the detail it is proposing to collect scaled back. In an environment where an increasing number of DB schemes are well-funded and relatively low risk, the concessions directed at those in surplus and taking Fast Track are particularly welcome.”
She adds: “Overall, the changes have moved the dial in the right direction. However, completing the (albeit improved) templates will still incur extra work as schemes need to set out plans and evidence in the format required. Example guides run to around 17 pages for Fast Track and 28 pages for Bespoke. Trustees and sponsors will need to factor this into upcoming valuation plans but at least now they have the certainty to meaningfully start to prepare.”
Barnett Waddingham principal and senior consulting actuary Mark Tinsley adds: “While they perhaps could have gone further, the regulator has introduced several sensible easements that will reduce the burden of producing the statement for many schemes.
“Nonetheless, the statement is still set to be a sizeable document that will require significant input from schemes. It is therefore essential for the Regulator’s promised new digital service to deliver a streamlined approach to submitting the valuation results.”
He adds: “Today’s response also confirms that schemes that go down the Bespoke submission route will need to provide significantly more information to the Regulator than schemes that are able to do a Fast Track submission.
“As such, stakeholders of smaller schemes (in particular) may wish to ask their advisers whether their scheme likely meets the Fast Track parameters, as it may be possible to take proactive action now to avoid the additional work and expense associated with Bespoke.”