Following the clear result of the December 2019 UK general election, 2020 was always going to be a big year for the pensions regulatory landscape. With the Pension Schemes Bill working its way through parliament, The Pensions Regulator has also set out its vision for the remainder of the year. I look at some of these areas below.
Revised Funding Code for Defined Benefit (DB) Schemes
Consultation on the revised funding code will commence in March (on the principles of funding, with the detail to follow in a further consultation late in the year).
The two main pillars of the new code are likely to be risk management and long-term funding. Previous statements from the Regulator have encouraged schemes to set long-term “secondary” funding objectives and contingency planning. I would expect the code to give greater clarity to these objectives and turn them into “must haves” not “nice to haves”.
The new code will contain two routes for schemes to follow. The “fast-track” route will set out certain conditions which, if met, will avoid the regulatory scrutiny of the “bespoke” route. I would expect the fast-track conditions will relate to areas such as strength of funding target, investment strategy and length of recovery period. The big question for me will be how many schemes will be able to follow the fast-track route? If the conditions are too onerous, then it may not do much to reduce the Regulator’s workload.
Consolidation – clarity on DC schemes, caution on DB schemes
The future of occupational Defined Contribution (DC) schemes is clear. Further consolidation is inevitable and has widespread support. The days of small to medium DC schemes, and DC sections of hybrid schemes, are numbered.
However, there is less clarity (or should that be Clara-ty) when it comes to DB consolidation and DB superfunds. While supportive of the principles of DB consolidation, the Regulator is “concerned” about separating schemes from their sponsors and the lack of an authorisation regime.
DB consolidation will continue, especially in schemes with the same sponsors (or sponsors in the same group) and with “traditional” consolidators. However, to me, the first deal with the new consolidators does not look any closer than it did this time last year.
Pension scheme governance – “No” to Professional Trustees for every scheme
The big question on the recent consultation into the “Future of trusteeship and governance” was whether or not it should become mandatory in due course for each scheme to engage a professional trustee. The answer for now is “no”, but the Regulator has confirmed its support for professional trusteeship accreditation and an industry code for sole trusteeship.
Following the consultation, the Regulator will also be establishing and leading an industry working group with the aim of improving diversity and inclusion on trustee boards. Further consultation will also follow on changes to the Trustee Knowledge and Understanding code, leading to updates to the Trustee Toolkit in due course.