The UK’s regulator for pensions has been warned by the industry over excessive prescription, after the body moved to update its legal framework for defined benefit (DB) schemes.
The Pensions Regulator (TPR) is currently in the process of updating its DB Code of Practice for schemes, while incorporating new objectives laid down by the central government.
While consultants, pension funds, and representative bodies have considered the regulator’s proposal, with many supporting the updating of guidance and the underlying requirements, issues have been raised over the level of prescriptive detail within the documents.
In its new code, TPR has proposed dropping its old funding triggers and length of recovery plan approach to a more holistic risk-based one.
It also offered nine basic principles that should be evident at DB schemes, which, if they make their way into the final code of practice, must be legally implemented by trustees.
The National Association of Pension Funds (NAPF) said it is essential TPR's approach to DB funding was communicated to trustees precisely.
Joanne Segars, chief executive of the lobby group, said the documentation needed to be clear and concise.
"We recommend the documents contain a summary of the key messages and best practice principles," she said.
"This will help trustees to adopt the essence of the new funding regime and [ensure] crucial points are not inadvertently overlooked.”
Aon Hewitt, Mercer and Towers Watson, the global consultancies, said TPR’s approach was not appropriate for the code, and aspects would be better suited as guidance.
Deborah Cooper, partner at Mercer, said the code was pushing the boundaries of TPR’s legislative requirement, and focused on quantity over quality.
“A code of practice is about behaviours TPR wants to see from trustees,” she said. “If they want, they can give further details as guidance.
“For some trustees, this prescription is not appropriate, but they may feel obliged to prescriptively follow the ‘guidance’ if it is set out in the code of practice.”
In its response, Aon Hewitt said that while the guidance on risk management was helpful, aspects of the code were not relevant to the Pensions Act 2004, the national law that created TPR and its objectives.
“We would caution against adding to the guidance to any extent,” Aon Hewitt said. “And we question whether it should be set out in separate guidance.”
The Society of Pension Consultants (SPC) also raised this point with the regulator.
In its response, secretary John Mortimer wrote that TPR should identify which parts of the code were meant for the regulator to meets its statutory requirements, and which were not.
“In particular, the code contains much guidance on investment,” he said. “It is difficult to see how this falls within the requirements of the Pensions Act 2004.
“It would also be helpful to provide trustees with a summary of the key points of the documents.”
Towers Watson supported this. Senior consultant at the firm, Graham Everness, said that, while the underlying message was supported, the code was too long and difficult to unravel.
“The detail could wash right over trustees,” he said. “It needs to be significantly pruned down with guidance provided on top.”