TPR hits back at DB funding code critics

The Pensions Regulator (TPR) has said that it “strongly disagrees” with those calling for its defined benefit (DB) funding code consultation to be rethought or abandoned.

In a blog, TPR executive director of regulatory policy, analysis and advice, David Fairs, said that the issues raised in the consultation were “even more important and relevant in light of Covid-19”.

The submission deadline for the consultation has already been extended, from 2 June to 2 September 2020, while a recent Aon survey found that support for the update funding code was “sliding”.

However, Fairs confirmed that the regulator was pressing ahead with the consultation as the principles “still stand” and TPR believes that integrated risk management are needed “now more than ever” in light of the crisis.

It is seeking views on the principles for the funding framework, which is proposing a code where trustees will be able to choose either a ‘fast track’ or ‘bespoke’ approach for completing and submitting a valuation of their scheme.

Fairs said that the ongoing pandemic highlights the importance of a flexible funding regime, as it would enable trustees and employers to better withstand economic turbulence, which TPR believes its DB funding code proposals provide.

He noted that although some have argued that requiring trustees to justify the risks they are taking relative to the fast track benchmark undermines flexibility, the regulator does not agree with this view.

Furthermore, Fairs stated that fears that the code would force employers to put more money into their scheme’s than they can afford were unfounded, as one of the “key principles” of the proposals is that recovery plans should be driven by employer affordability.

In 2021, TPR plans to consult on where fast track guidelines should be set, and Fairs added that is will be “essential” to account for market conditions and the financial landscape to strike the right balance between risks to members and The Pension Protection Fund (PPF), and employers’ sustainable growth.

Fairs concluded: “So, in summary, we believe the principles we have laid out for consultation remain the right ones to focus on.

“We recognise the challenges the current environment brings and we intend to reflect prevailing conditions in any parameters we set in our second consultation on the DB code later on next year.

“We are looking forward to a robust and constructive debate and our door remains open for anyone who wants to talk to us about the consultation ahead of it closing.”

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