Nine in 10 schemes believe new DB funding code will affect them

Nine in 10 (90 per cent) UK pension schemes think that the new Defined Benefit (DB) Funding Code will affect the way they are run in future, research from Aon has revealed.

The survey, which was conducted amongst 250 attendees at an Aon webinar on the funding code consultation, revealed that 42 per cent of respondents thought the new code would have either a moderate or significant impact.

In addition to this, a further 48 per cent thought it would have some impact, while only 10 per cent thought it would have little or no impact.

Commenting on the findings, Aon partner and head of UK retirement policy, Matthew Arends, stated: “It’s clear that the consultation on the DB Funding Code is concentrating minds at UK pension schemes with few believing that its effects will be negligible.”

Arends said that the essence of the new code is to ensure all DB schemes - including open ones - have a low-risk target and a plan to reach it by the time the scheme matures, although he cautioned that Aon’s 2021 Global Pension Risk Survey showed that 81 percent of schemes already had a low-risk target and that the average expected time to reach full funding on that measure was 8.8 years.

“So does the new code add much that’s new and needed? It does provide a welcome degree of latitude in many areas, but it also contains several prescriptive elements,” he continued.

“These include the requirement to agree most aspects of the plan with the sponsor, a new maximum risk check, the requirement to de-risk the target by a hard deadline based on the scheme’s duration of liabilities, and a much greater focus on quantifying the employers’ prospects and available cash, which are key determinants of the covenant’s strength.

"During a period when they have been navigating new forms of volatility, we have also seen a growing burden on trustees and schemes - but the new funding regime would require further documentation to describe and monitor de-risking plans.”

“The question remains whether the impact will be to drive better DB risk management, or whether it will simply be unnecessary interference in the well-established plans that schemes generally now have.”

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