Willis Towers Watson has called for the government to “go back to the drawing board” and redraft proposed new DB funding rules.
In response to a Department of Work and Pensions’ consultation to draft regulations, WTW says these new rules would impose “a narrow, simplistic and overly rigid framework”. With the consultation due to close on October 17 WTW is encouraging schemes to make their concerns known to the DWP.
The consultancy has also written to ministers in DWP and HM Treasury to underline its main concerns.
WTW head of retirement GB Rash Bhabra says: “The seed from which these new regulations have grown was first planted in 2018, when the government acknowledged that the existing scheme-specific funding regime works well for most schemes, but sought to make it easier for the regulator to police the minority.
“Prioritising enforceability above all else has meant inserting too much prescription into what was supposed to be a principles-based framework.
“There is little flexibility around the ‘low dependency’ positions that schemes must target, nor around how quickly they must get there. One-size-fits-all low dependency targets could crowd out investment in infrastructure and other secure income asset classes, concentrating investments – and the associated risks – in gilts and credit that target very low returns.
“For some schemes, the regulations will also increase how much the sponsor needs to contribute over the next few years – potentially detracting from the government’s growth agenda where contributions displace investment in the business – or make it more likely that the sponsor terminates further benefit accrual.
“Long-term funding plans that have been painstakingly agreed between trustees and sponsors could have to be reopened when the measure of how mature a scheme is moves around with market interest rates: there are schemes who would have seen their date of ‘significant maturity’ come forward by seven years during the past 12 months.
Bhabra adds: “In other policy areas, the government has shelved proposals that it inherited. These pension funding regulations should also be sent back to the drawing board.
“The next iteration should retain the aim for all schemes to have clearly articulated funding and investment strategies with an appropriate focus on the longer term, but should recognise that less nuanced approaches may prove less robust.”
These comments follow similar criticisms by LPC that the rules could damage the government growth agenda.
Responding to these comments these earlier comments 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.”