Charles Cowling: Schemes may be voluntarily adopting lower risk strategies to avoid TPR involvement
Two-thirds of defined benefit (DB) schemes expect to adopt a fast-track approach to submitting actuarial valuations once the new DB funding code is introduced, a webinar poll by Mercer has revealed.
The consultancy's event for around 400 pension schemes included a presentation from The Pensions Regulator (TPR) executive director of regulatory policy, analysis and advice David Fairs, who reassured delegates that the regulator would be listening to the concerns of pension schemes around the new DB funding code, which is expected to come into force in October 2023.
The webinar heard that the new funding regime with its focus on achieving low dependency at significant maturity currently has the challenge that significant maturity was measured relative to duration, which moved around significantly with interest movements in 2022.
This had, delegates were told, the potential to create unwelcome volatility and makes it difficult for schemes to have a clear target and timeframe to achieve it.
Fairs noted the intention of the new code was to create clear journey plans and understanding of risk and that TPR will be working closely with the Department for Work and Pensions to ensure that the new funding code is introduced in a way which supports the evolving maturity of funding and investment strategies and enables trustees and employers to understand and plan for that.
A poll of attendees conducted during the webinar showed that two-thirds of those that offered an opinion believed that their scheme would adopt a fast-track approach to future actuarial valuations.
Mercer chief actuary Charles Cowling said: "This is possibly more than the industry was expecting and shows that we may soon be likely to be entering a regime where the significant majority of UK pension schemes may be voluntarily adopting lower risk strategies in order to minimise the chances of TPR involvement in their valuations."
In another significant poll response, around two-thirds of schemes said they believe they are within ten years of significant maturity.
Cowling said: "This suggests that we may be very close to the final endgame for most DB pension schemes in the UK. This may result in an acceleration in the move from equities and other growth assets into low risk investment strategies and increasing demand for insurance company buyout solutions."
TPR launched its consultation on its draft funding code of practice for DB schemes in December alongside a ‘fast track' consultation outlining its regulatory approach to the method.
Read more
- TPR launches consultation on new DB funding code
- TPR's DB funding code welcomed but 'detailed regulation' questioned
- TPR sets out thinking as it prepares to launch second DB funding code consultation
