Pension professionals call for TPR to focus on covenant sustainability amid Covid-19

The majority (67 per cent) of pension professions believe that The Pensions Regulator (TPR) should adjust its 'tougher' approach to focus on the sustainable growth of scheme sponsors amid the economic impact of Covid-19, according to a survey from Herbert Smith Freehills.

The poll, undertaken during a recent webinar, revealed that just 21 per cent thought that the regulator’s existing 'clearer, quicker, tougher' approach, initially adopted in light of recent high-profile corporate failures, should be maintained in the current climate.

A focus on covenant sustainability was also prominent in relation to what changes pension professionals thought the regulator should make to its proposed approach to the new defined benefit (DB) funding code.

In particular, almost three quarters (73 per cent) of respondents urged the regulator to introduce short-term easements into the parameters for the proposed fast-track regime for the next valuation cycle, whilst almost a third (32 per cent) called on TPR to increase the prescribed length for recovery plans via the fast-track route.

Furthermore, more than half (53 per cent) of respondents though that TPR should break the link between the fast-track and bespoke approval regimes to ensure schemes which choose the bespoke route are not judged by reference to the regulator’s fast-track parameters.

Commenting on the findings, Herbert Smith Freehills head of UK pension practice and partner, Samantha Brown, said: “The regulator’s tougher approach to pensions regulation and the policies leading to the introduction of the new criminal offences and regulatory powers were developed in much more benign economic times.

“The world has now changed and it seems inevitable that TPR will need to modify its approach to support the economic recovery and to promote the sustainable growth of sponsors on which DB schemes depend.

“The regulator launched the consultation on its new funding code just before we entered the first national lockdown in March.

“Although many of the principles may still hold true, the regulator needs to consider carefully how they are applied and how much strain its new approach may place on sponsors whose businesses are reeling from the impact of Covid-19.”

Industry experts have previously warned that 70 per cent of DB schemes would fail TPR fast track requirements, with analysis from Lane Clark and Peacock (LCP) warning that sponsoring employers of large DB schemes’ could face a £100bn bill under the new guiding regime.

Furthermore, a number of organisations have called for greater flexibility in the code to ensure fast track does not become the default, such as the inclusion of a ‘third option’ alongside the fast track and bespoke routes.

The webinar also discussed the broader implications of the upcoming Pension Schemes Bill, with the majority (77 per cent) of attendees agreeing that that new criminal offences and regulatory powers included could inhibit legitimate corporate activity.

LCP partner and webinar speaker, Steve Webb, commented: ‘It is vital that the new funding regime can handle the diversity of the occupational pension landscape.

“If too many schemes are forced into an overly-prudent funding template this could be bad news for members, sponsors and the economy as a whole."

The Pensions and Lifetime Savings Association (PLSA) has previously warned that the wording of section 107 could unintentionally criminalise ordinary business activities, with the Scottish National Party also recently tabling an amendment to try and avoid the risk of this.

TPR has been contacted by Pensions Age for comment.

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