Overly prescriptive approach to DB funding regs 'not fit for purpose'

The draft regulations on defined benefit (DB) funding go “much further” than what was previously consulted on, Hymans Robertson has said, warning that an overly prescriptive approach could have a “far reaching and detrimental" consequences.

Hymans Robertson partner, Patrick Bloomfield, argued that the “narrow and prescriptive approach is simply not fit for purpose across an industry with such a wide spectrum of circumstances”.

Bloomfield highlighted three particular areas that Hymans Robertson has been “deeply concerned by”, including concerns that the draft regulations “sacrifice scheme-specific flexibility, over-stepping into areas that should sit in The Pensions Regulator's (TPR) code of practice”.

The suggestion that what a business can afford to pay to its pension schemes would be prioritised over how a business needs to invest to grow was also another area of concern.

In addition to this, Bloomfield raised concerns that the narrowness of the envisaged target investment strategies could leave no room for economically efficient investing and could “supercharge” systemic risks.

He stated: “As drafted, the regulations go much further than what has been put forward in TPR’s 2020 consultation on DB funding. They also go far beyond the conclusions of the government’s Green and White papers.

“The consequences of overly prescriptive regulation will be far reaching and detrimental to businesses, scheme members and economic growth.

“The amplification of systemic risks currently being witnessed in gilt markets has potentially dire consequences that will spill beyond pensions and into debt, mortgage and foreign exchange markets."

Bloomfield argued that the regulations should be redrafted to remain broad and coherent with the current scheme-specific funding regime, and that the regulator should be empowered to regulate through the ‘fast track and bespoke’ model it has been warming the pensions industry to for the last two years.

“This would also make it easier for the industry and regulators to keep pace with the ever-changing financial and political climate," he added.

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