Anyone reading this will know that the DB Funding Code has been up for discussion with the opening salvo from The Pensions Regulator (TPR) coming in March 2020, a date now forever associated with the beginning of the impact of the pandemic. The effects of which we are all still feeling.
The announcement on 15 December that there will be a further substantial delay until late summer 2022 came as a surprise to many. As we inched nearer Christmas it became increasingly likely that there could be another delay but the extent of this delay is significant. It will mean that the follow-up to the initial consultation will be well over two years. You may think this is short-term in pensions but a lot has happened (and will continue to change) over that time.
Of course, the headline issue is assessing the true impact of the pandemic and Brexit on the economy. The impact on inflation and interest rates and by extension scheme funding and sponsor health will need to feed into TPR’s thinking. We are going to see more pressure on sponsors in 2022 with or without a new Code which was, in any case, expected to put pressure on sponsors to pay higher contributions and/or to set schemes on a clear flight path towards low risk and a lower dependency place. Would TPR’s position be unwelcome when sponsors perhaps need space and time to adjust to the new economic backdrop?
It is possible that TPR has welcomed the evident shift in the direction of travel, as Scheme Actuaries wrestled with a “phantom code” and many Trustees have embraced the de-risking journey without the requirement for the real code. That isn’t a firm position nor any position the Regulator would countenance over the long-term but maybe, just maybe, it likes what it sees. With the first consolidator “Clara” achieving authorised status another release valve for DB risk is coming to the market and this too is a welcome addition to the DB universe.
TPR does also only have limited resources; we know another initiative will progress over the summer, the single-code, which is also the place to go if you want to see inside TPR’s brain. Risk, risk and more risk are how they think and that’s right. The single-code is going to be an excellent exercise in risk prioritisation and assessment and will put many schemes on a much firmer footing. Placing risk ahead of the DB funding framework – actual funding doesn’t seem to be the biggest issue right now.
Future planning, covenant monitoring, end-game planning and risk management are far more useful endeavours.
Finally, Trustee pressures are also higher than ever. Boards are grappling with their data and GMP equalisation, together with the seemingly daily developments on ESG or climate-related issues which require endless time and energy, which no Board has.
To be honest, amongst all this noise I can understand TPR easing off on the DB Funding Code. Let’s see what happens when we reach the summer.