LONDON (26 February 2020) – Aon, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that polling at its first two pensions conferences of 2020 has drawn a largely positive response on the expected effects of the Funding Code, soon to be announced by the Pensions Regulator (TPR).
Nearly 300 pensions industry professionals attending conferences in Manchester and London were asked two questions:
- What impact do you think the new funding code will have on how you run your pension scheme?
- Do you think your scheme will go down the Fast Track or Bespoke route at your next valuation?
Among respondents to the first question, 67% expected the new funding code to have a positive impact on their schemes, with only 9% saying they expected a negative impact.
On the issue of whether schemes would adopt the Fast Track or Bespoke approaches at their next valuation, 53% said they would opt for Bespoke, and 19% for Fast Track, with 28% not knowing at this stage.
Paul McGlone, partner at Aon, said:
“Based on what is known so far, it seems that the industry is largely positive towards what they expect of the new code. Nevertheless, there are few caveats to this. The views so far are based on an expectation that the code will provide greater clarity and guidance while maintaining flexibility – so we need to see whether it delivers that.
“Also, the majority of our conference attendees are trustees or professionals supporting trustees and therefore the responses may be biased to their views – which are more likely to be aligned with those of the Regulator. We would expect the views of companies and sponsors to be more cautious – there is a possibility that the code could increase liabilities and the need for contributions, either in the short or long term.
“The Regulator has the expectation that a substantial proportion of schemes – and particularly smaller schemes with under 100 members - use Fast Track, a route that reduces the cost of negotiating valuations but potentially requires higher contributions. These tend to be under-represented at industry events, but 27% of those expressing a view at the Aon Conferences still thought they would use Fast Track.”
Paul McGlone continued:
“The balance for the Regulator to strike is making Fast Track easy enough to get substantial numbers to use it, but not so easy that it fails to provide security that they (and government) want in order to avoid future problems.
“The actual consultation is expected very soon and, in our view, the key thing to look out for will be clear definitions of the two approaches – a number of questions will lead from this. How realistic will it be for large numbers of schemes to achieve Fast Track? And how close to Fast Track will Bespoke have to be?
“Finally, how will enforcement of all this work? There were no new powers relating directly to scheme funding in the Pension Schemes Bill, so questions remain on when it is expected to apply and how will it be enforced. Either way, the industry will welcome increased clarity.”
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