Open schemes may have issues with the price of future accrual under the proposals set out in The Pensions Regulator's (TPR) DB funding code consultation, according to SAUL Trustee Company head of technical and communications, Rob Orr.

Speaking at the PLSA Investment Conference, Orr, said that his primary worry for open DB schemes was in the eighth principle in the consultation.

He said: “My main concern from an open DB scheme perspective, is that the eighth principle talks about how accrued benefits should have the same security in an open scheme as they do in a closed scheme.

“I can understand why TPR are saying that, but I think there's an argument that for new members joining open DB schemes, their benefit may not be paid for decades, so they have a much longer horizon to invest and get the returns they need.

“So, a little bit of concern around that and I can see some open schemes looking at it and think 'what's this going to do to the price of accrual going forward?'.”

TPR has launched a consultation to seek views on changes to the DB funding code to better manage risks on long-term scheme funding and investment strategy planning.

Orr also raised concerns with how long-term funding objective would work for open DB schemes.

“From an open scheme perspective, I can see that having a long-term funding objective would be welcome for schemes that are closed – that makes a lot of sense,” he added.

“But for schemes that are open, where they are not maturing or maturing at a slow pace, I'm not sure where the long-term funding objective sits with that. Because I can see an argument where you actually never get any closer to meeting your objective because the scheme isn't maturing.

“It's not clear to me at the moment how that would actually work, maybe that needs to be teased out a bit more in the consultation.”

TPR hopes that the consultation will allow it to create a clearer framework for DB funding and give clarity on how its ‘twin-track’ approach on scheme valuations will work.

Under the new proposals, trustees will be able to choose either a ‘fast track’ or ‘bespoke’ approach for completing and submitting a valuation of their scheme.

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