United Kingdom

Aon says support is sliding among UK pension schemes for new scheme funding code

TPR's multiple uses of Fast Track compliance may risk unintended consequences


LONDON (11 May 2020) – Aon, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that polling of UK pension schemes’ views on the Pensions Regulator’s (TPR) proposed new Code of Practice on Scheme Funding, suggests that their support is declining now that they have a better understanding of the measures’ implications.

Aon asked pension scheme trustees and corporate sponsors for their opinions on TPR’s proposed new Code of Practice on Scheme Funding both at Aon conferences in February - before the consultation launched – and subsequently in webinars. Attendees were asked to vote for the impact the new funding code will have on running their pension schemes. Before the consultation began, on average, 62% voted "tending to positive" and only 8% "tending to negative". However, since the consultation opened, only 47% voted "tending to positive" and 20% voted "tending to negative".

Matthew Arends, head of UK Retirement Policy at Aon, said:
"There has been a noticeable change in sentiment from pension schemes over the last three months. We have seen a 12% change in schemes' responses from tending to positive to tending to negative - indicating some growing scepticism that the consultation will deliver on its intentions. What isn’t clear is whether this is down to the pensions industry having had more time to digest the consultation, or whether it’s due to current conditions. Either way, it is likely to be a concern for TPR."

Aon's Fast Track Modeller tool has also analysed schemes' current level of compliance against the expected Fast Track compliance test. This breaks down Fast Track compliance into nine component tests. The analysis shows that approximately 20% of schemes would already pass Fast Track compliance, and that this proportion rises to 37% if schemes which fail on only one of the nine tests are also included. These findings accord with schemes' own views of whether they are likely to use Fast Track compliance at their next valuation - which stood at 27% in Aon's polling.

Matthew Arends said:
“On the face of it, it's good news that approximately one-in-five pension schemes look able to take advantage of a reduced regulatory burden through Fast Track compliance once it comes into force. This ought to mean speedier and cheaper actuarial valuations in the future.

"However, more concerning is the implication that TPR will use the Fast Track tests for two other purposes: first as a yardstick against which to measure compliance under the alternative, Bespoke, route, and second, as the default outcome that TPR will be able to impose if it is not satisfied with the agreement that a company and trustee board reach.

"These are very different purposes from the original intention of a simplified compliance option. We are concerned that these other uses for the Fast Track tests will have the unintended consequences of driving schemes' behaviours - ultimately encouraging adoption of a Fast Track approach even where it does not particularly suit the scheme's situation. This is what happened under the old Minimum Funding Requirement regime and it ultimately proved detrimental to the whole pensions industry."


About Aon

Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

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