A revised funding code for defined benefit (DB) schemes could have a £100bn impact on pension schemes and employers when published, KPMG analysis has found.
Pension contributions for a typical employer could be doubled when the code of practice is updated and comes into force, which is expected in 2020, as set out in last year's white paper.
KPMG's analysis assumed that requirements for prudence in the updated funding code will reduce discount rates by 25 basis points a year. This will result in the average scheme's current assumption of gilts plus 1% falling to gilts plus 0.75%.
This could also add 7% to the liabilities of a typical scheme if added to other requirements, including a reserve for future expenses.
Under the revised code, pension schemes will be tasked with setting a low-risk, long-term funding target and better managing investment risks.
The government and The Pensions Regulator (TPR) have additionally suggested a ‘comply or explain' regime for the code, designed to strengthen DB funding standards and reduce risk to members.
The analysis also assumes that the requirements for appropriate recovery plan lengths will lead to a fall in the period from seven to five years.
KPMG pensions partner Mike Smedley commented: "The new code will benefit members in the long term but could have a significant impact on pensions schemes and employers.
"TPR wants members to be better protected, and is increasingly telling schemes and employers how that should be achieved. But at the moment the details of the new code are sketchy."
He continued: "Employers will question whether higher cash contributions are the most effective way of protecting scheme - particularly if this comes at the expense of investment in the business. And trustees may come under pressure to implement ever more prudent investment strategies."
With the end of March being the most common valuation date for DB pension schemes, funding deficits are on track to be broadly unchanged over the last year, KPMG predicted, remaining at approximately £180bn across the UK.
Smedley added: "For those schemes and employers that were already struggling to make ends meet, the new rules are likely to add further challenges. Some schemes may find themselves with irreparable pension deficits and will need to consider alternative strategies."
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