Support amongst pension schemes for The Pension Regulator’s (TPR) proposed new Code of Practice on Scheme Funding is declining now that there is a better understanding of it’s implications, Aon has warned.

Research by the firm showed that, in February, before the consultation launched, 62 per cent of pension scheme trustees and corporate sponsors felt that the funding code would have a positive impact on their scheme, compared to just 47 per cent now.

Furthermore, whilst only 8 per cent expected a negative impact on the running of their pension scheme in February, this has surged to 20 per cent since.

Aon head of UK retirement policy, Matthew Arends, stated that the “noticeable change” in sentiment indicated “growing scepticism” that the consultation could deliver on its intentions.

He clarified that whilst this shift in attitude could also be due to current conditions, rather than the industry having more time to digest the consultation, it is likely to be concern for TPR “either way”.

The firm has also warned that currently, just 20 per cent of schemes would pass fast track compliance as outlined in the code.

However, this rose to 37 per cent if schemes which fail on only one of the nine tests were included.

This would see around one in five pension schemes set to be able to take advantage of a reduced regulatory burden, which Aon clarified should also mean speedier and cheaper actuarial valuations in the future.

"However,” Arends stressed, “more concerning is the implication that TPR will use the fast track tests for two other purposes: first as a yardstick against which to measure compliance under the alternative, bespoke, route, and second, as the default outcome that TPR will be able to impose if it is not satisfied with the agreement that a company and trustee board reach.”

He continued: "These are very different purposes from the original intention of a simplified compliance option.

“We are concerned that these other uses for the fast track tests will have the unintended consequences of driving schemes' behaviours - ultimately encouraging adoption of a Fast Track approach even where it does not particularly suit the scheme's situation.

“This is what happened under the old minimum funding requirement regime and it ultimately proved detrimental to the whole pensions industry."

TPR has recently extended the deadline for responses to the consultation until 2 September 2020, amid Covid-19 concerns.

At the time of the consultation's launch, there was mixed reaction from the industry, with some experts warning that the code could see DB schemes become "a thing of the past",
and further concerns since raised about the impact on open schemes.

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