Week ending 6 March 2020
The Pensions Regulator’s first formal consultation on its new funding code was published this week – a second one is expected later in the year and that will include a draft of the new code itself (which is not expected to come into force until the end of 2021). This first consultation focuses on the principles underlying the new code, but does still provide plenty of information on what TPR is thinking.
The two main developments, which TPR has been trailing for over a year, are as follows:
- as well as technical provisions, schemes will need to have a long term objective, which is to be fully funded on a low risk funding basis (with a discount rate probably in the range gilts + 0.25% to gilts + 0.5%) within 15 to 20 years, depending upon the maturity of the scheme
- for future funding valuations, there will be two routes that a scheme can choose in order to satisfy TPR – either they will need to demonstrate that they meet the requirements of TPR’s Fast Track approach (in effect a standardised approach whereby what’s acceptable for technical provisions assumptions, recovery plan design and investment strategy are all prescribed, relative to an employer’s covenant, and a scheme needs to meet all of the individual components), or they will need to provide a lot more information/justification under the Bespoke approach. Schemes will be able to switch approach from valuation to valuation, as appropriate.
The fine detail of the Fast Track approach is not yet specified, although there are proposals for areas like the different ways in which the strength of the discount rate might be ascertained and the structure of the recovery plan. There are also proposals for how the appropriateness of a scheme’s investment strategy could be assessed by means of a stress test. For schemes which are still open to future DB accrual, TPR states that members’ accrued benefits in such open schemes should have the same level of security as members’ accrued benefits in closed schemes.
The consultation closes on 2 June 2020.
The DWP has published a response to its consultation on the amount of the general levy due from 1 April 2020. It has decided to proceed with its preferred option of a 10% increase in the levy for 2020 (for schemes with more than 11 members) and a wider review for the 2021 levy. This levy funds the Pensions Regulator, the Pensions Ombudsman and the Money and Pensions Service.
The Continuous Mortality Investigation has released CMI_2019, its latest mortality projections model, which reflects the experience of the population of England and Wales in 2019. The model shows that standardised mortality rates were 3.8% lower in 2019 than 2018, which is the largest fall since 2011. However, what this means in practice is that cohort life expectancies under CMI_2019 are only about one month higher at age 65 than they were under CMI_2018, and lower than in all earlier versions of the CMI model. CMI_2020 could prove to be quite different, due to the impact of Covid-19.
In the news this week, the second Lloyds judgement says that historic transfer payments need to reflect GMP equalisation, the Pension Schemes Bill moves back to the Lords, TPR gets tough on AE compliance, the FCA surveys DB transfer advisers again and another buy-in is completed.
This quarter’s Arena has a summary of our recent Pensions Perspective, “Endgame planning comes of age”, which looked at how long-term funding and investment plans are evolving and why companies are increasingly taking the lead in designing an endgame strategy. It also shows all the usual financial and investment analysis for the quarter ending 30 September 2020.
Journey plans or glide paths may have been around for a long time but they’re at the heart of the Regulator’s proposed new funding code. In this Pensions Perspective, Leonard Bowman looks at how long-term funding and investment plans are evolving and explains why companies are increasingly taking the lead in designing an endgame strategy for their schemes.
This quarter’s Arena has a summary of our recent Pensions Perspective, “Emerging from lockdown”, which looked at how best to tackle the most common pension issues which companies are currently facing. It also shows all the usual financial and investment analysis for the quarter ending 30 June 2020.
As we keep hearing, we are living in unprecedented times. However, as we turn our attention to the future, what does the “new normal” mean for defined benefit pension schemes? In this Pensions Perspective, Leonard Bowman considers the most common pension issues that companies are facing and how best to ensure that the company approaches these on the front foot.
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