PLSA 2019: TPR proposes 'fast track' approach for schemes

The Pensions Regulator (TPR) has proposed introducing two ways for defined benefit schemes to comply with funding regulations – 'fast track' and 'bespoke'.

It plans to consult on whether it should introduce the scheme options, which aim to make it easier for smaller schemes to comply by prescribing what TPR expects of them.

He noted that smaller schemes often come to the regulator wanting it to tell them what they need to do to comply with funding regulations.

Speaking at the PLSA 2019 Annual Conference, TPR executive director for regulatory policy, David Fairs, said: “We're proposing to introduce two ways of complying with funding, one we'll call fast track and the other bespoke.

“In fast track, we will set what we expect people to do by the time people reach their state of maturity. What we want is for schemes to get low dependency on their sponsoring employer by the time that they mature.”

He added that the fast track approach will describe what a low dependency approach looks like, which would probably be based on gilts +0.25 per cent or gilts +0.5 per cent in terms of discount rate.

Fairs continued: “We're not saying that schemes have to do that tomorrow we're saying by the time they reach maturity and we'll consult on what we mean by maturity.

“We'll prescribe a basis by which they determine whether the funds in surplus or deficit. Once you have that, we'll prescribe a period on what we think is reasonable which we would expect the deficit to be paid back.”

Schemes that took the fast track approach would receive a much lower level of regulatory scrutiny, as TPR is prescribing a lot of what will be expected of them.

“We hope that schemes will find that an attractive route to go down,” said Fairs.

Those schemes that enjoy the flexibility of being able to vary their recovery plan or take more investment risk will be able to choose the bespoke approach, but will be subject to higher regulatory scrutiny and will be expected to justify their decisions to the regulator.

When the audience what asked for its opinion on the proposed 'twin track approach', 42 per cent said that it would depend of what the fast track approach looks like, while 35 per cent believed that it would be useful for smaller schemes but large ones would use bespoke.

Thirteen per cent said that they thought it would be very helpful.

Fairs concluded: “We're going to do two consultations, the first one around the principles and the second one must more about the detail.”

TPR expects the consultations to be published in January 2020, but it could depend on the progress of other parliamentary business, such as Brexit.

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