It’s useful to hear David Fairs look back on the gestation and progress of the DB funding code, I nearly said “his” funding code, but he reminded us when he opened up that he has moved on.
So what did we learn…
1. That covenant assessments are over rated
Fairs pointed to perhaps the biggest change in the Pensions Regulator in the past 12 months, the shift from a dependency on employer sponsorship to a culture of low dependency.
David Fairs observed that DB advisers are still unusually concerned with the employer covenant.
He claimed that trustees were still spending a lot of money on covenant analysis when they already have enough money in the kitty. He asked “is this proportionate?”
So how has the role of the covenant adviser become so important to the trustees and the Pensions Regulator?
Fairs pointed to his own time in the dock at the Work and Pensions Committee where corporate failures are considered “scandals” by Frank Field who gave corporates, trustees and regulators a hard time .
2. That September 2022 still dominates thinking over liquidity
David Fairs talks of “liquidity” as the September 22 problem resulting in 22 mentions of liquidity in the funding code.
He called the Truss mini-budget
“The most significant fiscal event over my time at the Regulator was the 2022 mini-budget”.
But questions from the audience suggested that it was not the assets owned but the borrowing of trustees that was the root cause of the fire sales that followed cash calls from the banks.
Padraig Floyd was quick to ask why the Mansion House reforms were omitted from David Fairs timeline of significant events leading to the DB funding code.
David Fairs did not think the investment of scheme assets material in productive finance material to scheme funding.
Paranoia about liquidity remains a threat to the implementation of Mansion House in DB and it’s clear from David Fair’s analysis that the DB funding code is still no friend to the Treasury’s calls for better use of the longer term durations of DB pension schemes “running on”.
3. That TPR’s still more concerned with schemes gaming the PPF than supporting the growth agenda
Although David Fairs analysis did not mention adding and replacing support for schemes with private capital backed journey plans, David was asked whether these were influencing thinking at the Pensions Regulator.
When I asked about the guidance to trustees and those supporting schemes with capital in the recently published guidance, he agree and remarked that more guidance is on its way.
While much of the noise is about “superfunds” consolidating weak schemes most of the discussions I am having are around stronger schemes with employers struggling to break free of deficit payments and recover money that is now surplus to the trustee’s needs.
The Regulator remains more worried about schemes using fast track to get round deficit reductions and Fairs said it will be using machine to read through the 1600 valuations it has submitted each year. The plan is to weed out outliers to the fast track guidelines while the vast majority of resource will be directed to bespoke schemes.
4. That risk still an imposter in the quietest graveyard
Rosalind Connor, asking about the level of investment risk a scheme can take, pointed out that there remains a real conflict between the employer and trustee in how a scheme should be invested
She pointed out that nothing in the funding code effects how the trustees invest – the legislation doesn’t encroach on trustee powers.
David Fairs suggests that the trustees and employers have to agree a strategy, but the trustees can deviate from it where it seems appropriate.
In the climate of “de-risking” that has persisted for 20 years, the Pensions Regulator is still struggling to open the gates to their quiet graveyard and encourage trustees to resist the temptation to be zombies.
An impression not a factual account
This is an impressionistic summary of what I heard from David Fairs and the 35 people on the call.
It was a high quality session with excellent contributions from Con Keating and others that I have not space to include.
Pension PlayPen coffee mornings continue to encourage debate and keep minds keen. Thanks to David for his time and for sharing his thinking and his slides with us.
If you didn’t attend and want to make your own mind up, please spend some time watching the video and flicking through David’s slides
You can watch the video here and read the slides at the top of the blog.
