XPS responds to funding code consultation

XPS responds to funding code consultation

24 Mar 2023

Heidi Webster, Head of Scheme Funding at XPS Pensions Group, said: “TPR’s DB funding code consultation draws to a close today. The official line is that the new funding regime will come into force from 1 October 2023. However this does not appear to provide sufficient time for the industry to be fully consulted on any changes to DWP’s draft funding regulations, which we first saw in July 2022, or any amendments to TPR’s draft funding code. We are also still waiting to see further covenant guidance and to be consulted on the form of the statement of strategy.

Given the long-term nature of the new funding regime, we feel TPR (and DWP) should take appropriate time to ensure the industry is fully consulted. Even if this means delaying implementation to later in 2023 or early 2024.

On the whole the changes set out in the code will help to embed a best practice approach for more schemes, improving collaboration between trustees and employers and ultimately leading to improved member outcomes.  However we have some concerns about the code as drafted, including that having to define the new covenant timeframes (visibility, reliability and longevity) may result in unproductive disagreement between trustees and employers; covenant reliability being a key driver of risk taking on the journey and recovery plan length.

We also feel that further guidance is required where schemes are close to or already beyond their deadline for reaching low dependency. For these schemes we feel realistic and reasonable measures should be available to bridge any remaining funding gap and to transition assets to a low risk allocation.