On the go: The Pensions Regulator has dismissed calls from industry to halt its work on a new defined benefit funding code, arguing that the affordability principle it espouses is “even more important and relevant in the light of Covid-19”.
The watchdog announced a preliminary consultation on its proposed twin-track approach to DB funding in early March, just weeks before the UK was forced into lockdown.
It has since extended the response deadline until September and released interim guidance on the specific challenges facing DB schemes during the pandemic, but several commentators have said that is not enough.
Former pensions minister Steve Webb criticised the rigidity of the ‘fast-track’ compliance option when employers are struggling to rebuild, while others have urged the regulator to skip consultation and be more authoritative.
In a blog on Monday, David Fairs, executive director of regulatory policy, analysis and advice at TPR, responded firmly to the criticisms, writing: “I can understand these sentiments, but I strongly disagree.”
He said the fact that the document was written amid more benign economic conditions was irrelevant, as the watchdog’s aim is merely to “build on our past messages on the importance of trustees setting a long-term objective and putting a realistic plan in place for how to get there”.
“I also believe the issues the consultation raises are even more important and relevant in the light of Covid-19,” Mr Fairs wrote.
“There is good evidence that schemes that have managed their risks well, and have built in sufficient resilience in their long-term funding strategy, are likely to have fared better as market conditions have worsened.”
The blog stressed that the primary mechanism for struggling employers to deal with their DB debts will be via the bespoke funding track, which requires detailed evidence to be submitted on why trustees are diverging from the funding standard set out in the fast-track option, and how they plan to reach their long-term objective.
But Mr Fairs did hint at a change in the funding level used to assess fast-track compliance, currently proposed at a target of full funding on a discount rate between 0.25 and 0.5 per cent above gilts, by the time the scheme’s duration is between 12 and 14 years. He has previously suggested that changes in the stringency of this funding standard could allow the regulator to ensure that fast-tack is achievable for some, but not all, schemes.
“We will review these parameters in light of the change in market conditions since we issued our consultation, informed by further modelling based on a range of economic scenarios. And, of course, we are looking for your views on this,” he wrote.
