TPR delays second DB funding code consultation until Summer 2022

The Pensions Regulator (TPR) has delayed the second consultation on its draft defined benefit (DB) funding code until late Summer 2022, to allow time to learn from the findings of Department for Work and Pensions' (DWP's) consultation in Spring 2022.

Providing the update on the regulator's timeline, TPR executive director of regulatory policy, analysis and advice, David Fairs, emphasised the need to "take the time to get it right".

In particular, Fairs said that it is "critical" that TPR's draft code the the DWP's draft regulations work together "in a coherent and integrated way".

In light of this, he said that the regulator wanted to take the opportunity to learn from DWP's consultation on the draft funding and investment regulations, which are expected to be published in Spring 2022.

"And we want to ensure that stakeholders have ample opportunity to engage with and input into our proposals as they are developing," he continued.

"Our second consultation on the draft code will not therefore follow immediately after DWP’s consultation on the draft regulations, but will be launched in the late Summer of 2022.

Fairs also clarified, however, that it is "very much business as usual" in the meantime, confirming that the existing code and funding regime will remain in place until such time as the new legislative requirements and code have come into effect.

In addition to this, he explained that, when introduced, the the changes will be forward-looking, meaning that schemes with valuation effective dates on or after the code’s commencement date will be affected.

TPR previously said that the consultation was on track to take place in H2 of 2021, with the code expected to be in place and operational in "late 2022 or early 2023", following a previous delay from mid-2020s.

LCP partner, Jon Camfield, also described the update from TPR as "another big delay in the timetable", highlighting this as demonstration of how hard it is to come up with a workable framework, "particularly in an uncertain post pandemic world".

"This means that the new regime won't impact on actual contributions payable to pension schemes until at least 2024 and perhaps later," he said.

"We suspect that their decision was made easier by the continued healthy position of pension schemes in today's market conditions, but it continues to leave a lot of uncertainty for employers and trustees trying to plan for the long term future of their scheme."

Commenting on the code more broadly, Fairs also noted that "one area that generated a lot of interest" in the first consultation was how the bespoke route would work in practice, confirming that this will be "a scheme-specific funding solution, with the extent of the flexibilities within it defined by the constraints of the legislation".

However, Fairs pointed out that one of the new requirements in the Pension Schemes Act 2021 is that trustees will have to explain how they intend to manage and support the risks their scheme is taking along the journey to their long-term objective.

He said: "We need a consistent way of measuring risk across all schemes, a common language, and in our consultation, we proposed to measure risk in bespoke funding plans against fast track, noting fast track already incorporates some risk based on covenant and maturity.

"We continue to believe that this is important, but we are conscious that that there needs to be room for schemes to approach risk in a way that is consistent with their individual circumstances.

"We are considering the best approach for trustees to demonstrate compliance with the legislation and measure and evidence that the risks they are taking in bespoke are supportable.

"We are also considering how best to incorporate covenant into both fast track and bespoke to ensure it can be used in the most flexible way to justify risk-taking.

"We look forward to engaging once more with our regulated community later in 2022 as we work together to develop and consult on a DB funding code that works for all and put savers at the heart of all we do."

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