Industry experts have welcomed the news that The Pensions Regulator’s (TPR) new Defined Benefit (DB) Funding Code has been laid in parliament, with the final code set to provide "much needed clarity" ahead of Autumn valuation exercises.

TPR confirmed today (29 July) that its new DB Funding Code has been laid in parliament, in what it highlighted as a "significant milestone" for the trillion-pound DB market.

News of the final code was welcomed by the pensions industry, as PwC employer covenant and restructuring partner, Katie Lightstone, highlighted the laying of the code as a "big moment" for those schemes and sponsors that have been waiting for the final parameters to define their own long term funding target.

Indeed, Broadstone chief actuary, David Hamilton, said that it is a "great relief" to finally have sight of the final version of the code, noting that "some thought this day would never come".

"Trustees and their advisers, particularly those with 30 September or 31 December valuation dates, can now start to plan with greater certainty for the additional work that is needed," he agreed.

This was echoed by Isio director, Iain McLellan, who said that the laying of the code "feels like getting to the end of the regulatory tunnel"

"We are encouraged to see that the regulator (and the government in drawing up final regulations) has been willing to listen to industry concerns and smooth some of the new regime’s harder edges," McLellan said.

"These welcome changes can be clearly seen throughout the final code in the shift away from fixed rules and back towards a principles-based approach.

"This should allow trustees and scheme sponsors the flexibility to properly reflect their scheme’s particular circumstances in their funding and investment plans."

However, McLellan clarified that "we are not fully clear of the tunnel just yet", noting that the industry is still awaiting updated employer covenant guidance and the final format of the Statement of Strategy – a new document trustees will need to put together during the valuation process.

"So, there are still some a few more steps on the journey to take, but hopefully the regulator will adopt a pragmatic approach when considering the first valuations under the new regime as a result of the short implementation period for the final rules," McLellan said.

"The totality of the changes being introduced by the new code remains complex. Although they have been hearing about it for a very long time now, trustees and sponsors will now have to step into the light and start figuring out whether any gremlins remain.”

This was echoed by Hamilton, who noted that there is a lot of detail to process and important supplementary guidance still to follow, such as that relating to employer covenant assessment.

"We hope that our feedback regarding the burden on smaller schemes is reflected not just in the code itself – which regularly mentions a proportionate approach – but in the way in which the new regime is monitored and enforced," he added.

Adding to this, Barnett Waddingham principal and senior consulting actuary, Mark Tinsley, encouraged TPR to have a focus on managing the cost of compliance when finalising the related Statement of Strategy guidance.

“Following the recent improvements in scheme funding, some have argued that the new measures are a solution to yesterday’s problem. While we still think the new regulations have a significant role to play in protecting savers, managing the additional cost of compliance has always been a concern," he stated.

"Therefore, we encourage the regulator to reduce the compliance burden associated with the Statement of Strategy, which is the final piece of the puzzle that the industry is still awaiting.

“Although the journey has been marred by unforeseen obstacles and significant turbulence, the final guidance is all the better for the detours enforced upon it by the pandemic and the gilts crisis.”

Broader pension initiatives could also be on the way, as PwC head of scheme funding and transformation, John Dunn, pointed out that the code’s announcement comes "within weeks of the new government coming into power, and follows quickly on from the ‘surprise’ Pensions Bill, and the announcement of the first phase of a landmark review to boost investment, increase pension pots and tackle waste in the pensions system".

"These are all positive signs that pensions and savings are seen as a key element of the government’s mission to boost growth," he said.

“If the momentum continues, we could well see further development of initiatives that give sponsors and members flexible access to surplus assets in pension schemes sooner rather than later.”

However, LCP partner, David Fairs, noted that given the new code has been a "long time coming", it has now landed in a "very different world".

Given this, he questioned whether the new code will help to deliver the growth the government is looking for, warning that the new funding regime’s underlying path to low-dependency investments appears "at odds" with the government’s clearly stated focus on growth and investment in the UK economy.

He stated: "The government’s pensions review announced on 20 July has a strong emphasis on boosting productive UK investment – and the funding code does not encourage DB schemes in that direction – although there does appear to be greater flexibility in the final code.

“The new code will require all trustees to carry out proper risk management - which is a good thing - but the new regime now seems to be a heavy burden in a world which has moved on since the original draft.

"The lack of flexibility in the regulations post-significant maturity means many schemes will need to think creatively to avoid trapped surplus.

"That puts greater emphasis on the need for new legislation to make it easier for schemes to run on and permit easier extraction of surplus if we are not to have schemes defaulting to buyout rather than considering options that involve investing in UK growth.”

---