Guest comment: Implementing TPR's new funding standards

Written by Society of Professional Pensions legislation committee member Shayala McRae
19/12/18

The DB white paper tasked The Pensions Regulator with delivering clearer funding standards that also help trustees develop a suitable, long-term objective for the scheme and use it to inform the setting of their technical provisions.

How might the regulator enforce this in practice? Consider, for example, that trustees of a mature closed scheme determine that an appropriate long-term objective is to secure members’ benefits through buyout within 15 years.

Could it be that the new standards will require their approach to setting technical provisions – by way of the underlying investment strategy and allowance for associated funding risks – to reflect this?

The law requires the scheme to be fully funded on the basis of its technical provisions, so this would mean that trustees will work towards achieving their long-term objective as part of the normal scheme funding process and triennial valuation submissions will just be steps on the journey plan towards reaching this objective.

It is likely that these objectives will also be subject to some prescription. Not, we hope, minimum funding requirement style prescription, but perhaps taking the form of requiring schemes that display certain characteristics to measure technical provisions using a specific gilts outperformance assumption, reach self-sufficiency in a given period or put in place a recovery plan of a specified length.

And if the trustees fail to comply with either the long-term focus or the prescribed elements, the regulator could always require that they explain their approach and justify any non-compliance within the soon to be legislated for DB chair’s statement!

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