93% of pension professionals do not believe DB funding proposals offer 'true flexibiliy'

Less than one in ten (7 per cent) pension professionals think there is 'true flexibility' in a proposed bespoke approach to scheme funding, according to research from the Society of Pension Professionals (SPP).

The survey of professionals' opinions of potential changes to defined benefit (DB) funding found that more than half (57 per cent) of respondents thought the proposed bespoke approach would fundamentally change the current scheme-specific funding approach to one where deviations from a one-size-fits-all route needed to be explained.

The remaining 35 per cent thought it would be a blend of the two different options.

The Pensions Regulator (TPR) proposed introducing the two ways for DB schemes to comply with funding regulations in October 2019, launching a consultation on the proposal in March.

The bespoke approach would aim to give trustees more flexibility while still adhering to legislation and codes of practice, while the fast track approach would see schemes receive a much lower level of regulatory scrutiny, as TPR would clearly set out expectations for schemes to have a low dependency on their employer by the time they reach maturity.

Just over a third (35 per cent) of pension professionals surveyed by SPP thought between 50 and 75 per cent of the schemes they worked with would anticipate favouring bespoke over fast track, while 49 per cent thought less than half of the schemes they worked with would opt for the bespoke route.

The most commonly listed factors that would be involved in a recommendation of the bespoke route were flexibility, seeking a suitable outcome for all scheme stakeholders and scheme size.

The research noted: “Our members’ responses show a widespread belief that the new code will essentially move the funding regime from one that is scheme specific to one where any deviation from the Fast Track standard needs to be explained.

“Nevertheless, there seems the expectation that around half of all schemes will go down a bespoke route, something that if it occurred would seem to challenge the central premise of the new code (that it allows TPR to target its resource on a small subset of schemes).

“Key to the decision whether to go fast track or bespoke seems to be concerns about the lack of flexibility in the fast track approach and whether or not it will be suitable for their clients’ schemes.”

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