Preparing for the DB Funding Code
20 September 2022
Keeping trustees and the wider industry informed about the DB Funding Code, and PLSA’s views on it, is even more important against the inflationary backdrop, says Tiffany Tsang, PLSA's Head of DB, LGPS and Investment.
If you’re reading this blog, then you’re probably already aware that here at the PLSA, we are not afraid to use our collective and individual voices to speak up for the industry.
The DB Funding Code is one such area on which we have been – and continue to be – particularly vocal.
That’s because back at the very start of 2022, we made the DB Funding Code one of our top six pensions policy priorities for the year. We did this by promising to continue representing the pensions industry on our members’ positions to The Pensions Regulator’s (TPR’s) proposals to revise the funding regime for DB pensions. Call it one of our New Year’s resolutions, if you like – except this one outlasted January.
In our published response to TPR’s March 2020 consultation, the PLSA made it clear that, overall, we support the principles of the Code, and the practicality of its aims and objectives.
We also agreed that TPR’s overarching proposal for what it called a ‘twin-track approach’ to compliance will help smaller DB schemes comply efficiently. But we questioned how the Code could be adequately applied within Fast Track, given how much variance there is within individual scheme circumstances. This is an area where we felt more consideration needed to be given - for instance, providing a set range of options for discount rates or technical provisions could be helpful.
One of our goals has always been to ensure any proposed new regime adopts a flexible approach to open DB schemes that are not maturing. Another has been to try to ensure that the bespoke approach will not be too onerous and will truly be ‘bespoke’ rather than ‘fast-track plus’.
Since we made the policy issue one of our top priorities for the year, the economic backdrop has changed drastically. Inflation in the UK has spiralled upwards, with a cost-of-living crisis exacerbated by Russia’s invasion of Ukraine and the subsequent sanctions imposed on Russia by the West.
DB schemes have long been under pressure, given the UK population continues to live longer. But with the seemingly unstoppable rise in inflation, those same schemes now face an even bigger squeeze.
However, the economic challenges facing the country make it even more vital that our views on the DB Funding Code are heard.
When the Department for Work and Pensions (DWP) published its consultation on the new regulations for the new DB Funding Code just recently, we noticed they did not include any details about ‘fast-track’ and ‘bespoke’ arrangements for schemes to show compliance, nor any significantly new details for open schemes or multi-employer schemes. We will be keeping a close watch on what pans out in the first part of the code that is finalised by TPR.
TPR is due to launch a second consultation on the Code in the autumn and has indicated it will be operational from September 2023. That coincides with the PLSA’s annual conference on 12-13 October.
At this year’s conference in Liverpool, PLSA policy board chair John Chilman will moderate a session on the DB funding rules. He will be joined by speakers from TPR, London Stock Exchange Group, and Pinsent Masons to discuss what might come out of TPR’s Funding Code proposals, and the subsequent impact on schemes and employers.
It is important that our conference agenda reflects the economic times we are living through. With that in mind, the session ‘Riding the inflation wave’ will bring together the PLSA and Ali Tayyebi and David Barnett from Barnett Waddingham, to discuss the wide-ranging implications for DB pension schemes’ endgames and their members’ benefits from high inflation and rising interest rates.
Find out more about the conference agenda and register here. We look forward to seeing you there.