This blog suggests that the Government’s consultation on the DB funding regulations and the yet to be published DB funding code is monkey business. The DWP should take a step back before making more mistakes.
After years of too-ing and fro-ing, the Government has laid the Occupational Pension Schemes Regulations 2024 (see para 2) below. This is an excerpt from a letter sent by Paul Maynard to Stephen Timms in answer to questions from the Work and Pensions Committee.
NEW: UK government confirms “no intention” to change rules over how discretionary #pension increases are awarded to members.
Paul Maynard, pensions minister, set out the Govt’s position on this ’emotive’ issue in a response to a parliamentary committee request. pic.twitter.com/vRVKk31pwo
— Josephine Cumbo (@JosephineCumbo) March 8, 2024
While it is disappointing for Trustees like BP’s that they can still be thwarted by sponsors in offering proper cost of living increases , it is heartening to know that trustees may have increased powers to share “surplus resources” to members (as well as sponsors).
But even this grant is dependent on the outcome of another consultation, a consultation which many people is both premature and probably futile.
While we have the DWP regulations, we don’t have the Regulator’s DB funding code
We need the DB funding code before replying to the consultation on the Regulations.
This whole process has taken 7 years. It is insulting to ask people to reply to these consultations in random order in a short space of time now.
DB schemes are mostly in strong positions – much stronger that they were, largely thanks to the efforts and generosity of sponsors. This is in spite of , not because of , the obsession with covenant risk and investment derisking.
However, TPR appear to have the wrong numbers for overall funding. Their numbers are different from those of the Office of National Statistics and within the next couple of weeks we will have the latest ONS numbers which should confirm that whatever TPR is basing its funding code regulations on, is almost certainly the wrong data.
As one of my regular correspondents recently pointed out
There is plenty time to consider whether what is now being proposed is proportionate and reasonable, as it is largely derived from past conditions which no longer apply.
It is high time that the debate on future funding on DB schemes was based on agreed not disputed data. We also need agreement that the intention is to offer “opportunities for sponsors and trustees getting their assets to work harder for all stakeholders“.
Risks taken should be “absolutely supported” , but we need to know and understand the risks that are being taken. The lack of transparency within the LDI strategies that went wrong in 2022 show that many trustees did not know the risks taken and we need to learn the lesson.
Pensions are not financial instruments to be traded on the secondary banking markets, they are strings of payments that keep people comfortable in retirement.
Any consultation response must start with that premise and not from some version of the past that is partially sighted. The DWP and TPR should be regulating with 20/20 vision and they’re not.
DWP should be consulting on what they intend to do in the Funding Code, not just on the Funding Regulations. The consultation should include a proper discussion on the allocation of surplus, only after we agree on what sustainable funding looks like.
If we can’t get the data right, we should not be either legislating or providing guidance on what we don’t properly know.
Bottom line we need to do more with what we get and make less demands on sponsors and the tax-payer to fund our pension promises.
One of the more ‘amusing’ aspects of TPR’s latest consultation is their “Example of trustee assessment of maximum affordable contributions. It has a table within it which commences with a data requirement for fiscal year 2022 – they could not even be bothered to update it.
I’ve had an anonymous text referencing the table you talk of
“That table is serious. Some might argue it is the most serious aspect of the whole DB funding code thinking. The Industry has not understood it so far – nor indeed TPR’s approach. Fortunately it is less important that it was, but it’s still important
The table is introduced by the statement “the trustees have assessed the reliability period as 5 (five) years”. Of course covenant is not “reliable” or “visible” for many years for most private sector employers. But that is no reason to suppose that it doesn’t exist thereafter. The free cash is assumed to drop to nil after 5 years and this assumes that the open scheme closes.
The framing is wrong and the assumptions wrong. The key to TPRs DB regime has been the “business analysts” advising trustees and employers. They have been captured by risk aversion and driven by the difficult cases and pressure from the WPC