PwC comments on The Pensions Regulator’s new Defined Benefit Funding Code of Practice

John Dunn, Head of Pension Scheme Funding and Transformation at PwC UK, said:

“The Pensions Regulator’s new code of practice on funding defined benefit pensions was today laid before parliament, which should ensure that the code will be in force by November, giving the pensions industry much needed clarity. Trustees and sponsors of pension schemes with valuation exercises scheduled to take place in the Autumn will be particularly relieved; in the absence of this code, they would have had to plot a course without a detailed map.            

“The code’s announcement comes within weeks of the new government coming into power, and follows quickly on from the ‘surprise’ Pensions Bill, and the announcement of the first phase of a landmark review to boost investment, increase pension pots and tackle waste in the pensions system. These are all positive signs that pensions and savings are seen as a key element of the government’s mission to boost growth.    

“If the momentum continues, we could well see further development of initiatives that give sponsors and members flexible access to surplus assets in pension schemes sooner rather than later.”

Katie Lightstone, Employer Covenant and Restructuring Partner at PwC UK, said:

“Trustees will now be in a position to understand what the new funding framework means for their scheme - and whether it’s ‘business as usual’ or whether more substantial changes are needed. For schemes and sponsors that have been waiting for the final parameters to define their own long term funding target, this is a big moment and might unlock long-running debates. 

“Much has changed over the Code’s seven-year development period, and for some well funded schemes the mandatory quantitative covenant metrics may feel like an admin burden. Trustees and sponsors should consider how to get the most value from the new framework, given improved funding positions and changes to their covenant. We’re already seeing the new covenant approach driving increased collaboration between trustees and sponsors - with the required information such as cash flow forecasts helping trustees get to the heart of the core covenant drivers.

“In a recent PwC client survey, 44% indicated the most challenging thing about the new Funding Code would be assessing the period over which there is ‘reasonable certainty’ over the covenant. The requirement for trustees to assess their ‘covenant reliability’ and ‘covenant longevity’ periods will likely be valuable in supporting them to consider their endgame options, as well as driving a much broader approach to covenant. This includes looking beyond near-term forecasts to economic drivers of business performance; sector trends; sustainability risks and opportunities; and the potential for disruption,including from geopolitical risks and AI.” 

ENDS

Media contacts: 

Kevin Scott

kevin.y.scott@pwc.com

07561 789014

Hannah Brook

hannah.brook@pwc.com

07483 421730