TPR drops plans to limit schemes’ investment in unregulated assets to 20%

The Pensions Regulator (TPR) has confirmed that it will not be proceeding with plans to limit pension schemes’ investments in unregulated assets to 20 per cent.

In its interim response to its consultation on its new code of practice, TPR noted that some respondents had interpreted the proposal as a restriction on illiquid investments and that its plan had “inadvertently” created a position that would affect well governed schemes.

Earlier this month, the government called on pension schemes to make further investments in long-term illiquid assets.

The regulator will now “explore options” for achieving its original policy goal of protecting members of poorly run schemes, whilst allowing schemes with liquidity risk management plans and prudent investment strategies to maintain exposures to unregulated assets.

The consultation set out proposals for the regulator to consolidate its 15 existing codes of practice into a single online code, with TPR stating that it received “general support” for setting common expectations to all schemes.

Respondents “welcomed” the modular format of the code, although some raised concerns about the code being presented as a PDF document.

Although “most responses” to the regulator’s proposed introduction of the new term ‘governing body’ were positive, some raised concerns, especially public service pension schemes, about the specific organisation and structural differences that the schemes and their administering authorities face.

“We accept and acknowledge the challenges described, although their cause is outside of our remit as a regulator,” the response stated.

“However, we have received at least one response suggesting ways to resolve the difficulties of using ‘the governing body’ for this group of schemes. We will examine this in greater detail.”

Concerns were also raised about the amount of work the regulator’s proposed own risk assessment (ORA) would entail, as well as the timeframe, what the finished product would look like, and the burden it would place on smaller schemes.

TPR said it remained of the view that trustees should prepare their first ORA in a timely manner and that it would consider how often governing bodies should review the ORA, but it will continue to work through the responses to identify possible changes or guidance requirements.

“I’m confident the feedback received during our new code consultation will help ensure the final version provides a clear, up-to-date and consistent source of information on scheme governance,” commented TPR executive director of regulatory policy, analysis and advice, David Fairs.

“I want to thank governing bodies and industry stakeholders for taking the time to be a part of our consultation process and reassure them that we have listened to concerns over limits on unregulated investments and the timeframe for the new ORA.”

TPR plans to lay the new code in parliament before spring 2022, meaning it is “unlikely” to come into force before summer 2022.

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