The Pensions Regulator on Approaches to DB Funding

7th February 2014

Organisation

The Pensions Regulator

Background

The Pensions Regulator is consulting on a revised code of practice for defined benefit (DB) scheme funding, a new regulatory strategy and a revised DB funding policy. These documents together instruct the regulator’s approach to DB schemes and DB funding. The consultation is driven by the need to incorporate the new statutory objective relating to the sustainable growth of the employer, as introduced by the Pensions Bill 2014, into their regulatory approach.

It is also an opportunity for the regulator to reflect on 8 years of practice - resulting in a need to update their regulatory strategy with their evolved understanding of risk and best practice, to produce clear guidance for how to initiate efficient and appropriate interventions, and to ensure a balanced approach that incorporates both employers’ and scheme trustee needs.

Who is it relevant to?

This guidance will be interpreted by scheme trustees, employers (including charity employers), the regulator and pension advisers and consultants, in:

  • Advising scheme trustees on best practice and duties;
  • Advising employers on what to expect in terms of trustee’s duties and compliance; and
  • Guiding advisers who help facilitate and negotiate these relationships.

CFG comments

Pension liabilities are an ever increasing concern for charity finance professionals, especially in the DB landscape. Approximately 23% of CFG members have DB pension schemes according to our 2011 survey. These liabilities may conflict with a charity’s ability to spend money in line with their charitable objectives. In some instances they are the cause of a charity’s liquidity issues, and can prevent strategically pertinent moves such as mergers. The guidance that trustees of DB schemes use to inform their approach to determining funding strategies with employers is therefore essential to ensure that charities have fair and affordable pension liabilities.

CFG is particularly concerned that the new ‘sustainable growth’ objective will be misinterpreted by scheme trustees and is keen to ensure that the regulatory strategy addresses this concern.

CFG is keen to ensure that the balanced approach the regulator adopts is truly reflective of charities’ (and not just private enterprises) employer needs.

How to Respond

The short consultation document can be found here

CFG's briefing can be found here

This consultation has now closed. Please see our response here.

 For all comments please contact Sarah Woodfield on sarah.woodfield@cfg.org.uk or on 020 7871 5476

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