The Pensions Regulator has today launched the first stage of its consultation on its new DB funding Code. This consultation focuses on the principles that will underpin the new Code and, as expected, it sets out the Regulator's expectation that, in general:
- DB schemes should have low dependency on their scheme's sponsor and reach their long-term funding target by the time they are significantly mature (the consultation indicates that this will be within fifteen to twenty years for most schemes), and
- a scheme's technical provisions will need to ratchet up over time to ensure that schemes achieve this.
The consultation also confirms the Regulator's intention to introduce a twin track approach to funding compliance - fast track and bespoke.
Under the fast track approach a scheme can expect limited regulatory intervention provided the scheme's valuation and funding arrangements meet prescribed metrics laid down by the Regulator. Where trustees cannot, or choose not to, adopt the prescribed approach they will need to justify any departure from this and any additional risk that they intend their scheme to carry to the Regulator via the bespoke compliance route.
The end result will be that, in most instances, sponsors will be required to put more money into their schemes more quickly with a much greater focus on trustees and sponsors agreeing the end game for their scheme – be it buy-out, consolidation or self-sufficiency. This clearly reflects the Regulator's intention to ensure a dignified end for DB schemes.
The consultation closes on 2 June 2020 and it will be followed by a second stage, which will focus on the content of the new Code itself, during the second half of 2020.
We will issue further commentary on the 175 page consultation paper in due course.
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