Ahead of government regulations being finalised, it was announced on 13 December that the Pensions Regulator (TPR) will be launching its second defined benefit (DB) funding code consultation before Christmas. The consultation will run for 14 weeks, with the aim for the code to be laid in summer 2023, and introduced in October 2023.
The regulations which will implement the new funding requirements were published in July, and are yet to be finalised.[1] TPR hopes that by providing its draft code to the pensions industry at this point, trustees and advisors will be able to better anticipate how the different elements of the legislation and code will work together holistically. The draft code sets out how TPR will interpret the legislation and how they envisage the package of regulations and policy will work together.
Together with the consultation on the draft code, TPR also plans to publish a consultation on the ‘fast track’ regime and its twin-regulatory approach. This aspect of the funding regime was not a legislative tool so had not been included in the draft code. However, David Fairs, TPR executive director of regulatory policy, analysis and advice, stated that it will remain a “key part” of the regime and will act as a “filter” for TPR’s assessment of actuarial valuations; if a valuation meets purview of the fast-track criteria, TPR is unlikely to scrutinise it further or engage with trustees. The new code will be forward looking, it will apply to the first valuation a scheme carries out under the new funding regime. This is currently expected to relate to schemes with a valuation effective date of on and after the commencement date, which is currently set for October 2023. It has been noted that the need for long-term funding was a key government objective, underpinning the regulations that were published in July. Fairs made it clear that TPR has taken on board recent events, and the economic climate in which DB pension schemes find themselves in considering the approach to the new funding regime. Those in the pensions industry will wait to see whether or not the draft code from TPR will provide the flexibility required for DB schemes to steer away from long term over-payments, whilst also giving them the ability to react rapidly to constantly changing market conditions.[2]
[1] Please see our earlier article on this here.
[2] For more information on the build-up to the new DB funding regime, see out article on trapped surplus here.
