The Pensions Regulator (TPR) must avoid allowing its enforcement of proposed defined benefit (DB) funding routes from requiring every scheme to fund to fast track equivalence, according to Hymans Robertson.

Hymans Robertson partner, Laura McLaren, called for more clarity on “what TPR considers acceptable bespoke valuations and the supporting evidence needed”, as the firm’s research has suggested that “a significant proportion of schemes think they are more likely to go bespoke”.

“Given enforcement is held back to the second consultation, we can’t fully critique the framework without understanding exactly what powers TPR will gain and how they will be used,” said McLaren.

Under the proposals, outlined in their consultation that ended on 2 September, schemes would opt for a ‘bespoke’ or ‘fast track’ funding route, with the former route being similar to the current case-by-case analysis situation and the latter involving schemes following set guidelines to increase simplicity.

The regulator has argued that its proposed ‘twin track’ approach will provide greater clarity for trustees and employers, though Isio has called for a third route to be added to the proposals.

McLaren also warned that there could be systematic risks caused by many schemes going down the fast track route chasing similar strategies, adding that this should be “considered in how TPR sets the parameters within the fast track framework and the governance to keep them under review as financial conditions change”.

McLaren concluded: “Overall we support the principles underlying the new code. Forcing trustees and sponsors to agree a purposeful plan to get their scheme to run-off prevents schemes optimistically drifting in the hope of better funding. Many well-run schemes have been doing this for some time already.

“Indeed, those schemes with long term plans that have taken steps to reduce equity and rates risk, are those coming through current market conditions in relatively better shape. Nevertheless, trustees and sponsors will be watching closely for the all-important detail still to come.”

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