The heavens open on tPR and DWP’s DB plans

As predicted in my recent blog , the heavens have opened and the Government’s plans for a new DB funding code and powers to the Regulator to make it stick are at risk of being deluged by industry criticism.

Not only is the DWP in a hole, but it now risks drowning. It needs a ladder out and needs no further digging.

LCP are leading the way with Steve Webb telling Telegraph readers that the Pension Fund deficit crackdown “could hit economic recovery”

Ros Altmann is no less bearish in her blog claiming in capital letters that


Billions of pounds turns out to be at least £100 billion and that’s just LCP’s estimate  for the schemes with assets of more than £1bn, (around 300 pension funds). Numbers I have seen from actuaries looking at the whole DB shebang suggest the cost could be a lot higher than that. Pensions Expert again features LCP number, but with a little more technical detail.

Jo Cumbo is also on the warpath writing in Corporte Adviser that

TPR should take different approaches to recovery plans of open and closed DB schemes

The DWP’s reaction has been to play the “if you’re funded properly you’ve got nothing to worry about” card, which is odd, because if all schemes were all funded as TPR would have them, they’d be investing in risk-free assets with no scope to invest for social good , environmental sustainability and with an eye to good corporate governance – which are the other Government’s big idea.

Having your cake but not eating it.

I have never seen  such unanimity against a Government consultation as there is against the DB funding code and I include sections of Her Majesty’s Government in that. The Bowles Amendment and the support it has received in the Lords is an expression of the genuine concern that forcing schemes down either the bespoke or fast-track route – proposed by TPR will lead to

  1. closure of the remaining schemes open to new entrants
  2. bigger pension bills for open and closed DB shemes
  3. pressure to make staff redundant and reduce DC contribution rates
  4. constriction on investment into illiquids (including public infrastructure projects
  5. impaired economic recovery

From Pension Expert

This all adds up to bad news for the DWP who don’t seem to have a particularly good fall-back plan in place.

The Pensions Regulator’s recently published strategy document , which aims to position it on the side of DC “savers” is at risk of floundering as DB plans continue to dominate both tPR’s resources and the resources of sponsors who find their pension budget no longer stretches beyond funding to the bare AE minimum

The first thing that the Government should do is to listen to representations from the open DB schemes such as Railpen who have done their sums and know the impact on their sponsors of meeting the demands of the new funding code.

The second thing that the Government should do is to find an acceptable alternative to the wordings of Sharon Bowles’ amendment that creates a carve-out for DB schemes still open to future accrual.

The third and final thing the Government should do is to drastically revise the proposals in its recently closed DB funding code.

By taking these immediate steps, the Government can avert a disastrous situation where private sector DB sponsors simply cannot meet its DB bills without shedding jobs, cutting DC pensions and losing the capacity to reinvest to bounce back.

If it sticks with its current proposals, the DWP risks head-on conflict not just with sponsoring employers but with other departments, in particular BEIS and the Treasury.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, advice gap and tagged , , . Bookmark the permalink.

5 Responses to The heavens open on tPR and DWP’s DB plans

  1. Derek Benstead says:

    Well said

  2. Brian G says:

    baffling incompetence

  3. says:

    Henry, whilst the £100bn is headline grabbing, I think that LCP’s analysis says that of the £100bn, £65bn is already committed and so I think that LCP are actually saying that the DB funding code will increase contributions over 10years by £35bn. And £3.5bn per year is less than 0.25% of private sector DB obligations. I am pleased to say we have received 130 consultation responses and we are going through those in detail. We are reading the feedback and thinking about it carefully which is what a consultation is obviously about. We have not yet reached firm conclusions on what we are going to set out in our second consultation nor completed our analysis supporting that. So it is a little premature to set out what will actually be the impact and we will of course publish an impact statement as we have said we would do.

  4. henry tapper says:

    Thanks David, it is good to see you are reading this blog and I admire your civility in the face of some provocation from me and others. I don’t think the LCP number is at the top end of the range, but even if the total extra spend was £35bn – is this an affordable burden on a relatively small number of schemes?

    I’m not sure why we didn’t get an impact statement first time around but I’m pleased that one is coming!

  5. ConKeating says:

    I think David is trying very hard to downplay the magnitude of the cost of the proposed Code. I hope this is not a prelude to another nonsensical impact analysis such as that contained in Annex F of the Bill documents.
    TPR estimated the cost of buy-out as being £720 billion above Technical provisions. PWC reported a higher figure £900 billion. Just how much can be shaved from that by self-sufficiency (low dependency) or the use of consolidators is an open question but it won’t reduce the cost magically – least of all if schemes are being encouraged to move to low expected return de-risked portfolios.
    Our own modelling work suggested the cost range might be £80 – £200 billion but that is looking low when we consider the sum of the individual actuaries estimates for their schemes of which we are aware – they amount to £160 billion. There are credible estimates of total extending to £350 billion of which we are aware.
    The economic consequences are significant. Two thirds of companies were already reporting strain from DB funding affecting their business investment. The proposed code looks likely to reduce that capital investment further – pre-Covid business investment was around £375 billion and considered too low to enhance growth. At these levels, it will also increase the likelihood of sponsor insolvency and corporate costs of new finance.
    Whatever became of that TPR objective?

Leave a Reply