New funding code for defined benefit schemes
27th January 2023
The Pensions Regulator (TPR) has issued a new draft funding code for defined benefit pension schemes. Rowleys’ Head of Pensions, Matt Hutchinson, explains more about the new funding code and what it might mean for trustees, employers and their advisers.
What is the new defined benefit funding code?
The new funding code will support trustees, sponsoring employees and their advisers to manage their defined benefit pension schemes. The revised code focuses on improving the security and sustainability of defined benefit schemes by reducing the reliance on sponsoring employers as schemes reach maturity.
The new code will require defined benefit schemes to have a long-term objective and a journey plan to get there. Key expectations include:
- trustees setting a plan for how they will achieve low dependency on the employer
- setting a journey plan to reach that point
- assessing the employer covenant as a key underpin for the level of risk that is supportable on that journey – considering cash, prospects and contingent assets
- setting their funding assumptions consistently with those plans
- open schemes allowing for future accrual where they can justify their approach
- assessing reasonable affordability when determining the appropriateness of recovery plans
The final regulations and code are expected to come into force on 1 October 2023, replacing the current code, which was introduced in 2014.
TPR is currently running a 14-week consultation, the second consultation in relation to the new funding code. The first consultation took place in 2020 and received 127 responses, which have been taken into consideration in the latest draft funding code. The closing date for responses is 24 March.
What action do I need to take?
TPR urges trustees, sponsoring employees and their advisers to read and respond to the consultation. It also highlights that the new draft code is forward-looking only so only schemes with valuation dates on or after commencement will be affected. Trustees currently working on a valuation should continue using the existing code.
The Rowleys pensions team are pension audit experts. We work with a large number of pension schemes, taking a balanced, risk-based approach to audit. If you’d like to discuss your pension scheme accounts and audit requirements, then please get in touch.