Pensions Regulator: DB funding consultation – interim response

Areas the 2020 consultation asked for views on included:

• The Regulator’s proposed regulatory approach of twin track routes to demonstrating compliance with the funding provisions of the Pensions Act 2004: a Fast Track route and a Bespoke route.
• The principles which should underpin all funding valuations; and
• How the principles could be applied in practice to provide clearer guidelines.

Concerns raised in responses to consultation included:

• How Fast Track guidelines would be set, with the risks that the guidelines would result in some schemes levelling down, while raising the cost of DB pension provision for other schemes.
• How Fast Track guidelines should work for schemes open to future accrual (the Regulator explained in a blog issued in December that schemes which are truly open to a continued flow of new entrants would not be expected to mature and move towards a long term funding objective (LTO).
• Issues surrounding use of the Bespoke route, in particular that: it may be perceived as second best; schemes using the Bespoke route may be subject to a greater evidential burden than those using Fast Track; and the risk of a reduction in flexibility, especially if the Bespoke route is benchmarked against Fast Track.

Second consultation

A further consultation is planned, expected to cover the draft code of practice itself and details of the Regulator’s proposed regulatory approach, including:

• The process for reviewing and updating Fast Track guidelines;
• The Regulator’s approach to assessing valuations;
• Engagement with DB schemes; and
• Enforcement.

The Regulator expects to issue its further consultation in the second half of 2021, after the Pension Schemes Bill completes its passage through Parliament and the DWP has consulted on draft regulations (expected for the first part of 2021).

Key Dates

Interim response issued on 14 January 2021.

Consultation paper issued on 3 March 2020.

Pensions Regulator blog in relation to DB funding issued on 8 December 2020.

Authored by the pension team