The Department for Work and Pensions is proposing draft regulations setting out the details of new requirements for defined benefit pension schemes to have a funding and investment strategy and report this to the Pensions Regulator in a DB statement. 

 

The new consultation, which runs until 17 October, also invites comments on proposals to amend the Occupational Pension Schemes (Scheme Funding) Regulations 2005 and details of the new requirement for DB schemes to appoint a chair where they do not already have one. The new regulations provide detail to last year’s Pension Schemes Act. 

 

Under the proposed rules, DB schemes will be required to have long-term plans set out in a funding and investment strategy, which they will have to submit to the Pensions Regulator. 

  

  

The DWP maintained that the proposed measures will contribute towards clearer funding standards and support trustees and employers to plan their scheme funding over the longer term, as well as requiring trustees to report progress against scheme targets.  

  

Pensions minister Guy Opperman said while most DB schemes are well managed, best practice was not universal. “Our intention is to have better – and clearer – funding standards, whilst retaining the strengths of a flexible, scheme-specific approach. It is neither ‘one size fits all’, nor about micro-managing schemes. Every scheme will be treated on its merits,” he said. 

 

He also addressed concerns about open DB schemes being forced to derisk, saying the draft regulations take account of schemes which are not maturing and have adequate ongoing sponsor support.  

 

“It is not our intention that such schemes should have to undertake inappropriate derisking of their investment approaches. The intention is to have better, and clearer, funding standards, but not to move away from the strengths of a flexible scheme specific approach,” he said. 

 

The proposed funding rules would also allow TPR to intervene more efficiently, according to the DWP, to ensure compliance and increase member security. They will flow into the regulator’s new DB code, on which a second consultation is still expected; a first consultation was published just before the Covid-19 pandemic locked the country down for the first time, giving schemes a choice of how to comply between either a ‘fast track’ or ‘bespoke’ approach. 

 

   

   

 

TPR’s chief executive Charles Counsell welcomed the DWP’s proposed measures, saying they will help trustees to focus on long-term planning and risk management and enable TPR to regulate DB scheme funding “more efficiently and robustly”.   

  

He added: “We will now take into account the draft regulations as we shape our new DB Funding Code of Practice, which we expect to consult upon in the autumn. We want schemes to have the continued flexibility on funding to suit their circumstances, while improving journey planning and security for pension savers over the long term.” 

 

   

The Pensions Management Institute has welcomed the proposals as a development that will give greater security to DB members.

“These new standards bring greater clarity to trustees as to what is expected of them and also improve security for members. Trustees are better now able to give greater focus to long-term planning and to manage risks more effectively," said Tim Middleton, director of policy and external affairs.

Others highlighted the inclusion of covenant as a formal measure for funding. Alex Hutton-Mills, managing director at Cardano Advisory, said the focus on a low dependency funding position could be a step change in how liabilities are measured.

However, he warned that “the risk for sponsors is that higher funding targets, and trustee prudence, further complicate decisions on the use of the 'marginal pound' at a time when management will be focussing on investment and liquidity decisions to ride out the current macroeconomic turbulence."