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Health Care
The Pensions Regulator (TPR) has recently unveiled its updated Funding Code of Practice, marking a significant milestone for trustees and sponsors of defined benefit (DB) pension schemes. This new code, which emphasizes a long-term approach to scheme funding, is being heralded as the perfect opportunity for a thorough review of DB schemes. In this article, we delve into the implications of the TPR Funding Code of Practice and why it presents an ideal moment for in-depth DB scheme evaluations.
The TPR Funding Code of Practice, introduced in 2023, sets out a framework for trustees and sponsors to ensure that DB schemes are adequately funded over the long term. It replaces the previous code, which was last updated in 2014, and reflects changes in legislation and industry best practices.
Key aspects of the new code include:
The introduction of the TPR Funding Code of Practice provides a compelling reason for trustees and sponsors to conduct a comprehensive review of their DB schemes. Here are several reasons why now is the ideal time:
The new code sets clear expectations for how DB schemes should be managed. By reviewing their schemes now, trustees can ensure they are aligned with these expectations and avoid potential regulatory scrutiny in the future.
A thorough review allows trustees and sponsors to develop a strategic plan that aligns with the long-term objectives outlined in the code. This can include adjusting investment strategies, reevaluating risk management practices, and considering the scheme's overall financial health.
Conducting a detailed review demonstrates a commitment to the scheme's stability and sustainability. This can enhance confidence among scheme members, sponsors, and other stakeholders, ensuring that everyone is on the same page regarding the scheme's future.
To make the most of the TPR Funding Code of Practice, trustees should follow a structured approach to reviewing their DB schemes. Here are some steps to consider:
Start by collecting all relevant data on the scheme's current financial position, including asset values, liabilities, and funding levels. This will provide a baseline for the review and help identify areas that need attention.
Review the scheme's investment strategy in light of the new code's emphasis on long-term objectives and integrated risk management. Consider whether the current strategy aligns with these principles and make adjustments as necessary.
The strength of the sponsor's covenant is crucial for the scheme's long-term sustainability. Evaluate the sponsor's financial health and consider how it impacts the scheme's funding strategy.
Based on the findings from the review, develop a funding plan that aligns with the TPR Funding Code of Practice. This should include clear objectives, risk management strategies, and a timeline for achieving the desired funding levels.
Keep scheme members, sponsors, and other stakeholders informed throughout the review process. This can help build trust and ensure that everyone understands the steps being taken to secure the scheme's future.
Given the complexity of DB scheme management, trustees may benefit from engaging professional advisors to assist with the review process. Advisors can provide expert guidance on interpreting the TPR Funding Code of Practice, conducting thorough assessments, and developing effective funding plans.
The TPR Funding Code of Practice represents a significant shift in the regulatory landscape for DB schemes. By taking advantage of this "perfect opportunity," trustees and sponsors can ensure their schemes are well-positioned for the future. A comprehensive review now can lead to better strategic planning, enhanced stakeholder confidence, and alignment with regulatory expectations, ultimately contributing to the long-term sustainability of DB schemes.
