The Pensions Regulator should do more to inform defined benefit pension trustees of their scope to invest in businesses outside their covenant net, actuarial firm Hymans Robertson has said.
A TPR consultation on DB funding closed on February 7. It included a draft funding code providing practical guidance to help pension trustees meet legislative requirements and a draft strategy setting out its future approach to regulation. These would help pension trustees understand and manage risk in their schemes.
In its response to the consultation, Hymans Robertson said that while it was broadly supportive of the proposals, there was room for improvement.
Calum Cooper, a partner at the firm, noted that sustainable growth of the sponsoring employer was now a central objective for TPR, but was not a statutory responsibility for trustees.
He said: '[TPR's] primary focus is on fulfilling their schemes' pension promise, and it has long been the case that trustees had to ensure that the contributions they sought in the short term didn't damage their chances of further contributions in the future.
'We would welcome more guidance on the extent to which it's appropriate for trustees to allow companies to invest in businesses outside their covenant "net" provided the trustees can share in the upside from that investment.'
Chris Hurry, Cooper's fellow partner at Hymans Robertson, explained: 'Essentially there will be some companies within a typical corporate group which form part of the group which ultimately supports the pension scheme and which the pension scheme can call on for its covenant. And there will be some businesses that sit outside that structure.
'For instance, a company might have some subsidiaries in a different country, and the profits from these companies might flow up into the group at a higher level in the corporate structure then the pension scheme currently has any access to.'
Hymans Robertson also noted that TPR had 'understandably' decided to prioritise larger schemes in the consultation but said guidance could be inapplicable and inappropriate for smaller and leave them 'scratching their heads'.
Cooper suggested that TPR could consider separate guidance or practical examples and case studies to help ensure that these schemes are not left behind.
The Financial Reporting Council also welcomed TPR's consultation and stated that it would it would like to work with the regulator as the Council was currently reviewing its technical actuarial standards and how they might be modified to support the proposed code of practice.
