Extra information required under The Pension Regulator’s (TPR) proposed Statement of Strategy (SoS) will be challenging and costly for UK pension schemes, industry experts warn.

TPR is currently consulting on SoS, which will require schemes to record their long-term funding and investment strategy, as part of the UK funding code which will come into effect from 22 September.

Laura McLaren, head of defined benefit (DB) actuarial consulting at Hymans Robertson, said that while the consultancy is “glad” to see the regulator publish detailed guidance for the statement of strategy, it is concerned that completing the template as proposed will create a lot of extra work for schemes.

In fact, she said that Hymans Robertson estimates that a typical scheme could add 20% to its valuation costs as a result.

She pointed out that TPR could make completing the template easier with pre-populated sections or automation where practical.

She said: “But our main concern is around the amount of detail TPR is requesting. This would be onerous for schemes and disproportionate to what TPR needs to regulate them, especially in an environment with many well-funded DB schemes targeting buyout.”

McLaren added that the SoS has “little value” to the schemes themselves beyond compliance. “It would be helpful to know what TPR, as a ‘proportionate’ regulator, is going to do with all the information that schemes will submit,” she noted.

She said that the requirements for ‘Fast Track’ in particular could be scaled back. “Asking for so much information misses the point of what’s meant to be a regulatory ‘filter’,” she added.

“A better approach could be that, once TPR has screened schemes it wishes to investigate further, it can ask for more information where relevant.”

Mark Tinsley, principal and senior consulting actuary at Barnett Waddingham, said that while TPR has an objective to become a data-led regulator and scheme funding valuations are one of the most appropriate to collect data on schemes, there are several instances “where the information being requested does not appear proportionate, either because the amount of work may be significant or because it is difficult to see how the information could be useful to users of the statement of strategy”.

planning table charts meeting

Completing the template as proposed will create a lot of extra work and could add 20% to scheme valuation costs

In its consultation response, the Society of Pension Professionals also highlighted that the regulator is asking for some information that adds little or no value to the trustees’ decision-making, especially in relation to well-funded schemes in a low-dependency asset allocation.

It said: “It is difficult to understand how providing this is proportionate or useful to TPR and therefore appears to be unnecessarily burdensome for schemes.”

The SPP has suggested TPR make the information requested better reflect scheme circumstances. For example, reducing the requirements for very well-funded schemes, and requiring less information from schemes that are going through a ‘bespoke’ route purely as a result of affordability constraints.

The SPP also raised concerns about the impact of the proposals on small schemes, especially those that are required to go down a bespoke route where the requirements are particularly challenging.

It said that the requirement to “resubmit the SoS between valuations if there has been a material change in circumstances, e.g. a change in investment strategy, […] could prove burdensome and may deter small schemes from making strategy changes that would be in the best interests of their members”.

David Hamilton, chief actuary at Broadstone, said the consultancy also suggested a number of “simple” changes in its consultation response that would “remove hundreds of data entries and the need to produce more figures or a detailed justification where it is not applicable or not necessary”.

He said: “We are keen that constructive discussions between trustees and employers about scheme funding and end-game strategies are not undermined by unnecessarily restrictive or heavy-handed submission requirements.”

Association of Professional Pension Trustee (APPT) chair Harus Rai said that while TPR believes its SoS will improve the sustainability of DB schemes, “all the extra requirements and costs diminish the sustainability of DB schemes, particularly smaller ones”, which equate to around 60% of all DB schemes.

He said: “Our members feel the time and monetary costs involved in the SoS as proposed are considerably under-estimated.”

In addition, Rai said that APPT members are “not sure” what problem the SoS is trying to solve.

“To impose onerous additional data requirements on those schemes that are now well-funded and largely de-risked seems to be disproportionate regulation that conflicts with government regulatory policy,” he said.

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