Falling support for TPR’s new funding regime

The report juxtaposes the results of questions asked by Aon at its conferences and webinars both before and after TPR’s consultation on the new regime was launched, finding that the 62 per cent of respondents “tending to positive” has dropped to 47 per cent, while the 8 per cent “tending to negative” is now as high as 20 per cent.

The decline in support is attributed to increased doubtfulness about the efficacy of the new regime. “There has been a noticeable change in sentiment from pension schemes over the past three months,” said Matthew Arends, Aon’s head of retirement policy.

“We have seen a 12 per cent change in schemes’ responses from tending to positive to tending to negative – indicating some growing scepticism that the consultation will deliver on its intentions.

“What isn’t clear is whether this is down to the pensions industry having had more time to digest the consultation, or whether it’s due to current conditions. Either way, it is likely to be a concern for TPR.”

The new regime, a proposed Code of Practice on Scheme Funding, would establish a twin-track DB funding approach, with the aim of reducing average scheme dependency. Schemes that opt for a prescriptive “fast-track” funding arrangement would be subject to less regulatory scrutiny, while those opting for a “bespoke” arrangement would face stricter oversight. 

As reported by Pensions Expert in March, the proposal is for schemes to be given a choice of two arrangements in order to avoid the pitfalls of a compulsory regime. It suggests lessons have been learnt following the failure of the minimum funding requirement in 2005.

However, there are concerns that the watchdog will use fast-track tests for two other purposes: “first as a yardstick against which to measure compliance under the alternative, bespoke route, and second as the default outcome that TPR will be able to impose if it is not satisfied with the agreement that a company and trustee board reach”, Mr Arends said.

“These are very different purposes from the original intention of a simplified compliance option. We are concerned that these other uses for the fast-track tests will have the unintended consequences of driving schemes’ behaviours – ultimately encouraging adoption of a fast-track approach, even where it does not particularly suit the scheme’s situation.

“This is what happened under the old minimum funding requirement regime, and it ultimately proved detrimental to the whole pensions industry,” he added.

TPR’s consultation began on March 3 and will continue in the coming months, closing in September.