The need for the Pensions Regulator’s (TPR) DB Funding Code in its current form came under question last month, as funding levels for FTSE 350 pension funds reach 109 per cent in July, according to Mercer.

Mercer's analysis showed that funding levels have been strong since the start of 2023, never dipping below 105 per cent, thanks to performance in the equities market.

TPR created the funding code in an effort to bring greater security to savers in DB schemes. Due to come into force in April 2024, it aims to introduce a more robust set of standards for DB schemes.

The draft code was broadly well-received by the industry – The Pensions and Lifetime Savings Association (PLSA) said in March 2023 that it welcomed the release of draft code and believed there was “much in the new funding regime that will help protect members of DB schemes.”

But there have been calls for clarification regarding its content and implementation, and some have questioned the suitability of the code in its current form, given the continued improvement in funding for DB schemes over the past year.

Mercer’s analysis showed a surplus of £54bn at end of July 2023, up from £49bn the previous month.

Mercer partner Matt Smith said: “The government has been looking for ways to increase DB pension schemes’ investment in what it calls ‘productive finance’ to support UK growth. TPR’s new DB Funding Code, as consulted upon at the beginning of the year, would pull schemes in the opposite direction.”

“Since the Mansion House announcements, TPR have stated they’ll clarify how their code will accommodate investment in growth assets for open and immature schemes,” Smith added.

“This leaves us with uncertainty about when the new DB Funding Code will come into force and what it will say when it does.”

Smith said the introduction of the code as it stands could lead to doubt over how best to proceed with ongoing valuations, and added: “At a time of heightened global and UK macroeconomic uncertainty, strong governance, clear objectives and rigorous risk management are all crucial – this is equally true for pension schemes and businesses.

He urged trustees and sponsors to “take the time to understand the current draft of the DB Funding Code” so that they would be in a strong position to navigate “whichever direction the code ultimately takes.”

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