The Pensions Regulator has said it will take the impact of Covid-19 into account in its impact assessment and development of Fast Track guidelines as part of the second DB code consultation, due in the second half of 2021.  

 

The regulator published its first consultation on the proposed DB funding code in early March, shortly before Covid-19 took hold of the nation and companies were ordered to lock down to curb the spread. 

 

The world has changed irrevocably in the months since the proposals were developed, and the industry had been speculating on whether the regulator would soften its stance given the impact of Covid-19 on scheme sponsors in particular. One of TPR statutory objectives, introduced in the wake of the financial crisis, is to minimise any adverse impact on the sustainable growth of an employer, an objective that arguably runs counter to some of its other objectives. 

 

Having to continue to square this circle, TPR is seeking to both protect member benefits and the Pensions Protection Fund whilst not coming down too hard on employers. 

 

“We believe the key principles we set out in our consultation, and which focus on good Integrated Risk Management, remain relevant at these challenging times. However, we will certainly take account of the impact of COVID-19 when we carry out our impact assessment and develop Fast Track guidelines for consultation,” its interim response reads. 

 

“We will be developing our Fast Track guidelines while taking into account the very challenging current economic conditions, and we will carefully assess any potential impacts,” said David Fairs, executive director of policy. 

 

The second DB code consultation will have to wait for the pension schemes bill to become law and for the Department for Work and Pensions consulting on regulations, which is expected in the first half of this year. 

 

It will contain the approach TPR is taking in light of the responses to the first consultation and of the final legislation, and the draft code of practice for consultation and proposed regulatory approach. This will include “developing thinking around” the process to review and update Fast Track guidelines, TPR’s approach to assessing valuations, engagement with DB schemes, and enforcement. 

 

 

TPR says there was “general support for the principles and regulatory approach proposed”.  

 

The document however also summarises a list of concerns voiced in more than 6,000 comments in the consultation responses – such as some schemes ‘levelling down’ or an increase in the cost of DB  provision depending on where Fast Track is set, and the reliance on covenant being “watered down” or less available beyond the medium term. 

 

TPR says that some of these concerns stem from misunderstandings and promises to clarify its proposals. However, a number of them reflect precisely those practices that the regulator seems intent on stamping out, such as reliance on a perceived long-term sponsor covenant. TPR has previously expressed a view that company fortunes are not certain beyond five years and schemes should therefore not seek to rely on this. 

Tiffany Tsang, head of DB, LGPS and Investment, PLSA, said it was "slightly disappointing that the publication does not clarify further – at this time – some of the misunderstandings the report notes have been made about the proposals", and hopes to work with TPR on the next proposals.

For Ian Neale, director at policy experts Aries Insight, there is an apparent mismatch, "almost suggesting cognitive dissonance", between the opening statement that there was general support and the later acknowledgement "of what were many fundamental criticisms raised in a significant number of authoritative responses".

He added: "We hope that in considering all 6,000 comments carefully as promised, a fundamental re-think will commence."