24 March 2023
The Institute and Faculty of Actuaries (IFoA) believes it is essential for both the Funding Code and the Regulations supporting defined benefit (DB) pensions to be consistent if they are to be workable and implementable by trustees. The IFoA’s response to the Pensions Regulator’s (TPR) DB Funding Code consultation points out that trustees will be required to comply with the law as set out in Regulations from the Department for Work and Pensions (DWP), not the Code. The two must be completely aligned to avoid confusion for trustees and any lack of clarity on trustees’ and sponsors’ legal requirements.
The IFoA supports TPR’s decision to maintain the Funding Code’s scheme specific nature and the flexibility incorporated into the current draft Code. We agree with TPR’s proposal to separate the Code and Fast Track guidance but have identified areas where further clarification would be helpful, in particular in relation to a Scheme Actuary’s role in confirming to TPR that three Fast Track tests have been satisfied.
Leah Evans, Chair of IFoA Pensions Board, said: “TPR has rightly recognised that pension schemes, which differ in size, funding, and investment strategy, need some flexibility in the Code. We support the clarity that provides for schemes to take a bespoke approach to the Code while offering a fast-track route for regulatory supervision where this is appropriate and certain criteria are met.
“However, there are areas which require further consideration in both the DWP’s draft Regulations and TPR’s draft Code if they are to be successful when the new funding regime is introduced, potentially later this year - most notably, the proposed approach to the calculation of significant maturity, the definition of low dependency and the requirements for schemes already past their relevant date when they first carry out a scheme funding valuation under the new requirements. It is essential that the final Regulations and Code work together on these points.
“There is a high degree of complexity around the Code itself and the Regulations which provide the overall framework, complicated by TPR having oversight of the Code and DWP having oversight of the Regulations. For this reason, we would urge both DWP and TPR to seek further industry review of the Code and the Regulations before finalising the new regime.”