Towards a new pension funding code


db-blog-may-2019-2.jpgOn Thursday, David Fairs, head of policy at the Pensions Regulator delivered a keynote speech to 200 or so delegates at the First Actuarial client conference.

He did so a couple of hours after publishing a blog which has been taken as a positioning statement from TPR before further consultations on the White Paper measures this summer.

Low dependency the new self – sufficiency

TPR has a duty to keep DB schemes away from the PPF. It does so by ensuring that the dependency of a scheme on ongoing contributions from sponsoring employer(s) reduces.  The Regulator sees this being achieved by getting more money into the scheme earlier and by reducing the investment “risks” taken by the scheme. It also considers contingent assets (things owned by a company that can be force sold if needs be) as reducing sponsor dependency.

In his speech , David Fairs moved away from the concept of sufficiency, where a scheme could be sponsor free, towards an aim of low-dependency (like Tata Steel’s sponsorship of New BSPS). This seems to me largely a semantic rather than actual difference but may signal a move away from the doctrinaire stance taken by some at TPR in the past. Many employers, and a great number of trustees – do not see the termination of a sponsor’s involvement in the scheme as desirable. The current craze for buy-out, buy in or consolidation through super funds is not something that the majority of First Actuarial clients are part of. In conversation with David Fairs since the event, I think that TPR has got this message. He certainly couldn’t ignore the questions he received from employers and trustees who could see little in the new approach set out in the blog and in David Fairs’ speech.


So what is new?

What appears new is what I can best describe as an “optional MFR”.  Of course the Regulator is keen that it is not seen as dictating how schemes are invested and funded and the blog says so explicitly

We have heard concerns that we are scrapping the flexibilities in the regime. We don’t intend to pursue a ‘one size fits all’ funding framework – this is not MFR 2.0.

What TPR intends is that there is a “fast track” to low dependency for schemes who don’t want to get involved in bespoke (consultancy driven) solutions.

The new code will provide a more straightforward, fast track route to demonstrating compliance with requirements but there will be scope for schemes to choose a more bespoke approach subject to further evidence being provided and greater regulatory scrutiny.

This looks like another version of “comply or explain” where schemes are not compelled to follow the Pension Regulators default (fast-track) but can expect considerable more scrutiny if they don’t. If this isn’t “one size fits all” – it’s certainly casting non-conformity as “Savile Row shopping”.


What hope for the optimistic DB scheme?

The Pension Regulator’s direction of travel is clearly being set by wider Government. In his speech, David Fairs talked of prioritising pension payments over dividend payments, of shorter recover periods (the time it takes to pay off a deficit) and of

a minority of schemes and employers abusing the flexibilities in the system (that) has made our job of proving non-compliance and taking enforcement action more difficult.

Trustees and Employers may be feeling about BHS and Carillon the way that IFAs feel about Active Wealth Management  and other IFAs working BSPS, a small minority make things a lot tougher for the rest of us. I hope that the Pensions Regulator does not go down a path that seeks conformity to a fast track, that demonises trustee decision making and ultimately forces all schemes into the kind of de-risking which has driven most schemes into ending future accrual. First Actuarial will continue to question the use of the word “risk” associated with harm and promote the adoption of “risk” as a means of getting things done. Hilary Salt’s talk made it clear that we consider risk – when properly managed – is something you need and want.


Necessary pushback

It is important that those who – like Hilary- believe that “worst case scenario” planning is not right for all – push back on the prevailing zeitgeist for de-risking.

First Actuarial have and will push back on the need for schemes to plan to close. We will continue to support with our consultancy the efforts of employers and trustees who want to keep schemes open for new members or at least for future accrual.

We will argue the case for non-conformity to the received wisdom that employers cannot afford to pay their staff with a wage for life when they retire.

Where there is no budget to meet the guarantees of a DB scheme, we will promote CDC.

It is important that this is being said, for if we don’t say it – who will?



That blog again.

David Fairs’ important new blog

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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