Pension industry professionals 'divided and cautious' of proposed TPR DB funding code

Pensions industry professionals remain “divided and cautious” on The Pension’s Regulator’s (TPR's) proposed defined benefit (DB) funding code, according to research from Aon.

The survey, undertaken during a Pensions and Lifetime Savings Association (PLSA) Annual Conference 2020 session, revealed that 21 per cent of respondents felt fairly or very positive towards the defined benefit (DB) funding code.

However, 24 per cent stated that they would feel negatively if the funding code was implemented without any changes, while a further 11 per cent would feel very negatively.

The poll also revealed that over two thirds ( per cent) of schemes had seen either no change or a worsened funding position during 2020, despite market recovery since April.

Considering this, Aon partner and head of UK retirement policy, Matthew Arends, noted that it is perhaps “unsurprising” that a combined 35 per cent of respondents viewed the funding code negatively.

He also noted that the 21 per cent who viewed the proposals favourably likely did so due to the introduction of fast track compliance, explaining that this reduces the cost of negotiating valuations but potentially requires higher contributions.

Commenting on the findings more broadly however, Arends stated that this year's experience has "clearly" shown that the funding code’s objective to drive better funding levels by a set date, and driven solely by scheme maturity, may need to be reconsidered by TPR.

Arends explained that the relatively negative views of the funding code are primarily due to conditions stemming from the Covid-19 pandemic, clarifying however, that this may also be due to the explicit statement that TPR will judge bespoke compliance relative to fast track.

He continued: “TPR expects all schemes to reach their long-term target by the time they are ‘significantly mature,’ which rules out simply taking longer to get to the target if asset performance is set back. That was the case this year, and it has created tensions.

“Many of the schemes which had seen their funding position deteriorate slightly or considerably in 2020 could also have seen a setback to their employer’s strength of covenant.

“That means the risk to members’ benefits remains heightened, especially when we are
approaching a time of extreme economic uncertainty.”

The findings also follow recent analysis from Lane Clark and Peacock which revealed that sponsoring employers of large DB schemes could face a £100bn bill under the new funding regime.

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