The Pensions and Lifetime Savings Association (PLSA) has today published its submission to TPR on the second major consultation of the draft funding code of practice for defined benefits (DB) pension schemes.

27 March 2023

• Two thirds (62%) of trustees do not agree that the implementation date of 1 October will be easy to achieve
• Most schemes believe flexibility will allow open schemes to take a different approach (60%)

The PLSA’s submission welcomes the additional flexibility in the draft code, particularly around the investment strategies which schemes can adopt and concepts of reasonable affordability. There is much in the new funding regime that will help protect scheme members.

However, there are serious concerns that there is a disconnect between TPR’s guidance and the related regulations. As a result, amendments to the legislation will be necessary in advance of implementation. Therefore, the PLSA believes the implementation date of 1 October 2023 should be pushed back to 1 April 2024. This extension will give schemes and employers the appropriate time to prepare, especially as the covenant guidance is not expected to be released until after the consultation on the code has concluded.

NOT ALL SCHEMES OR COVENANTS ARE THE SAME

It is important that the code more fully recognises that not all schemes are at the same stage of maturity, and not all employer covenants are the same.

DB pension schemes should be given greater flexibility over how to define scheme maturity, over the right regulation of “duration”, and on the requirements on schemes as they approach low dependency. 60% of trustees agree that greater flexibility will allow open schemes to take a different approach.

A main concern for open schemes is that much of the draft code assumes most schemes are closed or close to endgame. As a result, the various requirements that relate to open schemes are spread out throughout the whole code. Based on feedback from PLSA members (60%), it would be very helpful for open schemes if all requirements relevant to them were together in one place. The same applies to the requirements for multi-employer schemes.

In relation to the period of visible covenant reliability and the period after that, 60% of PLSA members said they support the positions in the code, which allow for more immature schemes to assume higher funding levels and accept slightly more risk; and for open schemes to take a different approach if deemed appropriate. However, if schemes have a strong employer covenant, a significant number of respondents (42%) believe schemes should be able to invest in a slightly “riskier” strategy at various points in time.

Nigel Peaple, Director of Policy and Advocacy, PLSA, said: “We welcome the greater flexibility provided in the latest version of the draft DB Funding Code. However, it is important that the new regime fully recognises that not all DB schemes are the same, some are open, some are closed, and all are at varying levels of maturity. Equally, not all employer covenants are the same and it is important that the final regime reflects this and provides appropriate flexibility.

“There is still quite some work to do on the draft code and draft regulations so we believe the implementation date for schemes of 1 October 2023 is too soon. Given that we do not yet have legal certainty, and even once the regulations are finalised the industry will need time to carefully consider with trustees and employers how to comply, we ask that the implementation date be put back by 6 months to 1 April 2024. As the guidance will be in place for many years to come, it makes sense to take a few more weeks now, in order to get things right for the future.”

Source: PLSA