Fast Track or Bespoke? A new choice faces companies sponsoring defined benefit pension schemes, one which has stayed hidden during Covid-19 but could have a multi-billion pound consequence for UK plc as a whole.
The introduction of a “twin-track” approach to the funding of pension schemes was proposed by The Pensions Regulator in March 2020. With the onset of the Covid-19 pandemic weeks later which kept companies busy in 2020, the policy document went unnoticed by many companies, but pensions consultancies have warned that while the new regime introduces a simple solution for SMEs, its rigidity could stifle innovation and demand unnecessary cash injections from the UK's blue chip companies. The consultation has now closed but as a further consultation will be launched in Spring 2021. Companies are being urged to start planning for the new regime now as it is likely to become a requirement for companies in 2022.
The twin-track regime gives sponsors of DB schemes two options. Fast Track would see schemes having to use a number of fixed assumptions in exchange for a lighter regulatory burden. If schemes choose to take the Fast Track approach it may well result in Trustees adopting an excessively prudent approach to setting assumptions as part of a valuation and increase cash contributions from the company. Those opting for a more flexible bespoke approach would have to justify why they have used this approach.
As the regulator attempts to get tougher with companies, will its insistence on more cash, sooner, put unnecessary stress on companies struggling to rebuild after the Covid-19 pandemic? The FT, consultancy Mercer, and the regulator itself gathered for an interactive webinar unpicking the implications of the new policy proposal. Featuring interviews, panel debates and live Q&As, the session allows corporate DB sponsors to stay ahead of the regulator's thinking, and prepare a strategy to navigate the watchdog's final policy.
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