The Association of Professional Pension Trustees has hit out at the Pensions Regulator's proposed statements of strategy for defined benefit schemes, saying scheme return data could be supplemented instead. Others have also criticised the proposed new requirement on which a consultation closes on Tuesday.
 
In early March, the regulator issued a consultation on new strategy statements by DB schemes, in which they would need to set out how they will reach low dependency funding by the time they are significantly mature. The statements will form part of the incoming funding regime with ‘fast track’ and ‘bespoke’ funding requirements, with the new DB funding code expected to be in force in September.

At launch, the statements were already criticised for being too burdensome, despite the regulator creating templates to make the process easier for trustees.
   

 

The APPT has now slammed the statements as unnecessary and even counterproductive. The association noted that according to TPR, the statements are required to improve the sustainability of DB schemes.

“We struggle to agree with this statement. All the extra requirements and costs diminish the sustainability of DB schemes and in particular smaller ones, notably those smaller than £50m,” the APPT said, adding that these make up about 60% of all DB schemes. 

The association’s chair, Harus Rai, said the statements require “endless items of data" of which only a minority add value. “For example, it is not clear to us what the benefit is to anyone of generating and providing estimated cashflows for the next 100 years,” Rai said. 

Instead of having a separate statement, he said data collected through the annual scheme return could be tweaked and supplemented. 

“Overall, our members feel the time and monetary costs involved in [statements of strategy] as proposed are considerably underestimated,” the association said. 

Many members were also unsure what problem the statement of strategy was trying to solve. “To impose onerous additional data requirements on those schemes that are now well funded and largely derisked seems to be disproportionate regulation that conflicts with government regulatory policy,” it argued. 

What is more, much of the data schemes will need to provide in the statements will become stale quickly, the APPT claimed, meaning it is of questionable use. 

APPT members feel that TPR fails to recognise the role of the employer in deciding the trajectory of a DB scheme, suggesting that the trustees are the only decision makers in running a pension scheme. 

"Whilst the trustees could be targeting buyout, the employer may decide they want to follow a run-off approach instead. Where this is agreed, most of the entries in the [statement of strategy] would immediately become of little value,” it observed. 

Others were also sceptical. Partner at law firm Sackers, Eleanor Daplyn, suggested the new requirement isco onerous. 

“Whilst some concessions are made for smaller schemes, for most DB schemes, the statement looks set to require extensive actuarial, investment and covenant input. With schemes having to delve deeper into the detail, there is a real risk of increasing the burden on already stretched schemes,” she warned.  

 

“Given the volume of DB scheme information gathered through the existing valuation process and annual scheme return, it remains to be seen just how useful TPR will find this new level of granularity,” Daplyn added. 

Extra work creates extra cost. Laura McLaren, head of DB actuarial consulting at Hymans Robertson, estimates a typical scheme could add 20% to its valuation costs as a result of the new requirement to produce a strategy statement. 

 

“Our main concern is around the amount of detail TPR is requesting. This would be onerous for schemes and disproportionate to what TPR needs to regulate them, especially in an environment with many well-funded DB schemes targeting buyout,” she said, adding: “It would be helpful to know what TPR, as a ‘proportionate’ regulator, is going to do with all the information that schemes will submit.”

McLaren suggested that TPR could scale back the requirements for ‘fast track’ especially, and could instead ask for further information from schemes where it needs this.

McLaren said about fast track: “Asking for so much information misses the point of what’s meant to be a regulatory ‘filter’.”