TPR DB funding code risks being ‘worst of both worlds’ - LCP

The Pensions Regulator’s (TPR) defined benefit (DB) funding code risks being the “worst of both worlds” if it decides to weaken the ‘fast track’ benchmark and still assess ‘bespoke’ approach schemes against its parameters, LCP has warned.

LCP partner, Jon Forsyth, cited concerns that the regulator was considering relaxing the parameters for the fast track approach.

He noted that this may risk sponsors being unwilling to fund beyond the level required to meet fast track benchmarks, therefore constraining what pension trustees are able to negotiate.

Furthermore, Forsyth said that if TPR stood firm on its commitment for schemes going down the bespoke route to be assessed relative to the fast track parameters, this would lead to the bespoke approach being too inflexible.

Forsyth explained that many schemes using the bespoke route are likely to have special features that would mean a one-size-fits-all fast track approach would not be an appropriate benchmark.

“The framework for fast track valuations potentially matters hugely to all schemes, and not just those planning to use the fast track approach,” Forsyth commented.

“TPR proposes that schemes planning to use a bespoke approach are still benchmarked against the fast track rules, and these may simply not be a good fit for particular schemes such as schemes that are open to new members, charities, those with a particular need to carefully balance the need of other stakeholders in the business, or potentially larger or more complex schemes.

“Simply weakening the fast track rules does not solve this structural problem but could have the negative effect of making life more difficult for some sets of trustees. There is a real risk that we end up with the worst of both worlds if one set of parameters is used for two quite different purposes and does neither job well.”

He suggested that TPR considers a more flexible regime, where “bespoke really means bespoke” and moves away from the fast track benchmark, and the fast track measure is “appropriately prudent”.

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