Third DB funding code option needed, says Isio

The Pensions Regulator (TPR) should adopt a third defined benefit (DB) scheme funding route to work alongside the proposed ‘fast track’ and ‘bespoke' options, according to Isio.

Isio partner, Mike Smedley, suggested the inclusion of a ‘fast track lite’ option for weakened small and medium size companies, arguing that there was “no sense” in schemes spending large amounts to comply with the ‘bespoke’ route if they were already “paying all they can afford in deficit contributions”.

“The third approach would have the same ‘fast track’ principles but with a more realistic approach to confirming the maximum level of affordable contributions,” said Smedley.

Isio’s comments come just ahead of the 2 September deadline for TPR’s consultation into changes to the DB funding code, with the consultation having launched in March.

The regulator has argued that its proposed ‘twin track’ approach will provide greater clarity for trustees and employers.

However, Lane Clark & Peacock have warned the proposed funding regime could risk pushing schemes towards more tentative investment approaches, while the Association of Consulting Actuaries said the regulator must maintain flexibility without tying all schemes to fast track by default.

Smedley concluded: “In terms of next steps, we don’t get any sense that TPR will be in a hurry to push through new onerous funding regulations when the economy is in such dire straits. The regulator will also be sensitive to the weekend’s news on how the government plans to pay for the furlough scheme.

“We hope the next stage of the consultation to improve standards includes a more pragmatic option for weaker companies but we do not expect to see anything until later next year while the changeable politics of the pandemic are navigated.”

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