Sackers responds to DB funding and investment regulations consultation
The DWP’s consultation on draft regulations setting out significant new requirements for defined benefit (“DB”) schemes to have a funding and investment strategy closes today. Designed to bring into force provisions of the Pension Schemes Act 2021, the draft regulations set out how schemes should achieve “low dependency” on their sponsoring employer by the time the scheme reaches “significant maturity”.
Whilst the DB funding regime is intended to be scheme-specific (the DWP covering document on the consultation recognises this), the regulations’ inflexible drafting raises real concerns that DB schemes will be driven towards a one-size-fits-all (or fits very few) approach.
No concessions are proposed for open DB schemes which, alongside closed and maturing schemes, will be required to identify the “relevant date” at which the scheme will have a low dependency asset allocation. As the funding and investment strategy must be taken into account when setting funding assumptions, identifying significant maturity could be an artificial exercise for open schemes. We are concerned that the requirements risk making good quality open DB schemes (with good sponsoring employer support and standards of member security) more expensive to run, encouraging benefit redesigns and scheme closures. “Trust us it will be in the DB funding code” does not allay these concerns about the law itself seeming so prescriptive.
But the draft regulations are only half the story. As things stand, a number of key elements will be determined in the revised DB funding code which has not yet been issued by the Pensions Regulator, such as what amounts to “significant maturity”. Like Torvill and Dean, the draft regulations and the code will form a crucial double-act, so it is hard to envisage how one will work without the benefit of having seen the two together and how they support and interact with each other.
We hope that the Government will allow the industry further opportunity to comment on the draft regulations once TPR publishes the draft code for consultation.