Is the monkey now off the Pension Regulator’s back?

The Pensions Regulator finally got to lay its “new” DB funding  code of practice before parliament yesterday and it will be the subject of interminable discussion from the actuariality.

The trade press are all over it expressing a range of opinion summed up by the headline

Industry welcomes ‘balanced approach’ of new DB funding code of practice

Con Keating , a consistent critic of the analytic process adopted by TPR has this to say

In the press release accompanying the DB Funding Code of Practice released today, Neil Bull refers to DB schemes having £1.3 trillion of assets at March 31 2023. Their previous published value for that date was £1,415 billion. PPF published a value of £1,439.8 billion at the time, which was subsequently revised down to £1,404. The ONS survey estimate is £1,228 at that date.

TPR will have now seen and processed this year’s set of scheme returns which will contain an extra one third of schemes’ triennial valuations. So over three years we would expect TPR figures to reconcile with the ONS results. It will be another two years before TPR is using full valuation data for schemes.

The problem with the new funding code is that the  estimates of its cost were made using the old figures – TPR have just implicitly recognised that the cost will be £100 billion more that they stated in the Legislation’s impact assessment.”

This is more than academic griping. The optimistic view taken by the Pensions Regulator is that most schemes are now in low-dependency mode and that the covenant of the sponsor is decreasingly important as schemes move into self-sufficiency.

The truth is that the Pensions Regulator is making decisions on stale data and almost certainly underestimating the challenge ahead for occupational schemes.

Thankfully, it appears that the rigidity of the original funding code has been eased, a degree of discretion has returned and the impact of the changes estimated to be low *£20.4m). The Impact Statement for the Code is however nine months old and will have been based on the rosier numbers of TPR (not the more realistic numbers of the ONS).

The Code arrives at a time when pension schemes are being asked to take a long-view of the future. TAS 300 requires the actuariality to consider run-on as well as buy-out, the option to co-sponsor with capital rich backers and to consolidate into pension superfunds.

The idea of low-dependency being simply a matter of funding and prudent asset allocation is challenged by TAS 300 and by the Pensions Regulator’s new found enthusiasm for schemes to embrace risk and leave the quietest graveyard.

I suspect that the monkey of the DB funding code is finally off TPR’s back and clambering over the parliamentary benches. It will help the actuariality to provide guidance to trustees and it will help trustees to continue to aspire to self-sufficiency, but it will do little to move the dial on the fundamental problem- that pensions have become a hindrance, rather than a help – to this nation’s economic welfare.

The Pensions Regulator is in catch up mode, but it started from a long way off the pace and – as Dr Keating has explained – it will be years before it  gets back with the pack

They cannot even blame a puncture for being so far behind the pace!