Actuaries have welcomed The Pensions Regulators revised code of practice on the funding of defined benefit schemes, saying it strikes the right balance.
Following a lengthy consultation exercise, the TPR yesterday published the new, shorter code, entitled Funding DB Benefits. The code has been laid before Parliament and is expected to come into force in the next few months.
Stephen Soper, TPR's interim chief executive, said: 'The revised DB funding code and strategy set out our expectations of trustees, and how we will balance our current member and PPF protection objectives with our new objective to minimise any adverse impact on the sustainable growth of an employer.
'In the vast majority of circumstances, trustees and employers should be able to agree funding plans that both benefit the business and strengthen the scheme's long-term security - but this can only be achieved by employers and trustees working openly and collaboratively.'
Among the changes it makes are: a requirement for schemes to demonstrate more clearly a 'proportionate and positive' stance with regard to risk; and a change in the emphasis on 'reasonable affordability', away from repaying deficits as quickly as reasonably affordable, to one that considers the appropriate period in which to do so in view of the risks to the scheme and the impact on the employer.
It also makes clear that trustees do not need to scrutinise key business decisions made by employers unless employers are seeking to prioritise investment in the business over funding the pension scheme.
Nick Salter, president-elect of the Institute and Faculty of Actuaries, welcomed the emphasis on a more proportionate approach to managing risk and the encouragement of a collaborative approach between sponsors and trustees.
'Many pension schemes are engaged in de-risking strategies that anticipate reducing or eliminating risk over a period,' he said.
'The focus on identification, evaluation and monitoring of residual scheme risks rather than elimination of all risk, in our view, strikes the right balance.'
Salter added that the institute was pleased to see the change of emphasis to 'reasonable affordability' in determining shortfall contributions, but said it anticipated some challenges for sponsors and trustees in reaching agreement on what this would mean in practice.
At Towers Watson, senior consultant Graham McLean said that the regulator's statements offered something for the 'pension deficit hawks' as well as something for the 'doves'.
He said: 'The regulator does not want to be seen as a brake on economic recovery, but nor does it want to be blamed for not getting the money out of employers while it had the chance.
'The government has told the regulator to "minimise any adverse impact on the sustainable growth of an employer". Now, the regulator has copied and pasted this phrase when setting out what it expects trustees to help deliver - even though trustees' duties to scheme members have not been watered down.
'This is the main change from the draft code that was published in November and looks like a lobbying victory for employers - though the regulator still emphasises that trustees need to understand and manage risk.'