Having considered the various consultation documents issued by the Pensions Regulator, it wouldn’t surprise us if many trustees feel that they are already following the approach set out in the DB funding consultation, ie, focusing on covenant, funding and investment when going through an actuarial valuation. So where will the real focus be for any change in approach based on the Regulator’s new statutory objective? The real action seems to lie in paragraph 90 of the draft Code of Practice.
Paragraph 90 has prompted much interest – the final sentence reads: “Provision should be made for the scheme to have access to greater affordability to the extent that planned investment does not take place.” This statement creates an expectation that if a planned investment (used to negotiate down employer contributions) does not go ahead, then such investment should then be made available to the pension plan. This seems to be a warning to employers to be careful of what they claim about their future investment plans. We’re hoping that further clarity will be given around this following the consultation but indications from the Regulator to date suggest that where the employer’s business plans have influenced trustee decisions, then the Regulator expects the trustees to keep an eye on those plans and to engage with the employer if the plans don’t proceed. It appears that the Regulator’s greatest concern would be any suggestion that monies kept back for investment purposes might end up being distributed as dividends. Employers and trustees will no doubt need to adopt a degree of proportionality in their approach – further clarity on the Regulator’s expectations would be welcome.