Commenting on TPR’s consultation on the draft DB funding code of practice and regulatory approach which closes tomorrow, partner Janet Brown said:

The DWP consulted last year on draft regulations setting out new requirements for defined benefit schemes to have a funding and investment strategy. 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”. The draft regulations raised concerns that the DB funding regime would become less flexible, with less room for trustees and sponsors to manoeuvre around the specific circumstances of their scheme. We were concerned that the requirements also risked making good quality open DB schemes more expensive to run, potentially encouraging benefit redesigns and scheme closures.

TPR’s draft DB Funding Code is designed to form a crucial double-act with the regulations, adding a layer of artistic interpretation on top of the more rigid regulatory steps. TPR’s code is far more detailed than the regulations (but legally reliant upon them) and has some welcome provisions on open schemes when assessing “significant maturity” and therefore the period over which investment risk can be taken.

But it takes two to tango, and the draft Code and regulations are currently out of sync in several crucial areas. Unless this is addressed in the final versions of the regulations and the Code, trustees and sponsors could be left in the uncomfortable position of not knowing if the dance they are doing is in time with the underlying law (regulations). As we are probably unlikely to see the regulations again before they are finalised, our hope is that the DWP will take on board the industry’s comments and will reflect the important scheme-specific flexibility in the regulations themselves clearly, even if the drafting is not so elegant.

As regards timing, TPR’s stated intention is an in-force date for the new funding regime as early as October, which seems ambitious. Given other developments, there must surely be potential for this to slip, and the pensions industry would no doubt welcome an early heads-up if this is the case. Maybe we are due a reset for the new funding and investment regime?

You can read our full consultation response, here.