- New Code of practice places more weight on maintaining a strong pension plan sponsor
- Facilitates a more collaborative approach between employers and their pension schemes
- Likely to lead to some reductions in employer deficit contributions
In response to the Pensions Regulator‘s Code of Practice on funding defined benefit pension plans, which was announced before Parliament today, Mike Smedley, pensions partner at KPMG, commented:
“We welcome this new, more balanced approach from the Pensions Regulator. In particular the Regulator recognises that a strong employer is the best security for pension scheme members; as well as being good for employees and the economy generally. This is more appropriate than driving pension funding to ever higher levels. Particularly when the market conditions that pension schemes are struggling with – such as quantitative easing – may be temporary.
“To illustrate the change in tone, parts of the Regulator’s old guidance stated that deficits should be met “as quickly as reasonably affordable”. But now, deficit recovery plans should be “appropriately tailored to the scheme and employers’ circumstances”. Consequently, a strong employer will no longer be under pressure to meet a deficit very quickly at the expense of investment in the business.
“In practice most employers and pension schemes already reach a fair and balanced outcome on pension funding. But current guidance can lead to a lengthy process, with the Regulator’s rhetoric making discussions more difficult. Hopefully the new Code will enable a more collaborative approach between employers and their pension schemes.
“We also expect that in some cases employer contributions towards deficit will reduce - particularly where the current Regulator’s guidance has led to higher levels of contributions than were strictly necessary.
“The new approach should lead the Regulator to be more discerning with its interventions; focussing on those schemes where there is a real risk to members’ benefits or where trustees and employers are unable to agree.”
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