The Pensions Regulator (TPR) has confirmed that a second consultation on the defined benefit (DB) funding code will take place in the second half of 2021.

In a blog post, TPR executive director of regulatory policy, analysis and advice, David Fairs, stated that the Pension Schemes Act, which gained Royal Assent last week, will help build on the existing approach to DB funding as well as setting new requirements.

He emphasised that the regulator is “committed” to the scheme-specific regime and is looking at the next steps arising from the legislation, which is developing a funding code that works for all schemes, including those that are open, with these aspects already consulted on in 2020.

“As the act’s measures were being developed, it was acknowledged many schemes are doing the right thing,” he stated. “But there is increased focus on helping trustees navigate through the end game for their DB schemes.”

Despite this, he noted that there are a "small number" of schemes that abuse the flexibilities in the system, confirming that TPR is looking to provide clarity around what is expected of trustees and employers in legislation, such as setting a long-term funding objective, a journey plan of how to get there and how risk should be managed.

“Schemes already doing the right thing should find this straightforward to achieve and the greater clarity should help us take action where we see non-compliance,” he said.

Fairs also confirmed that that the second funding code consultation will take place "in the second half of 2021", which is in line with the regulator's expected timeline.

Industry experts had previously raised concerns around the proposed DB funding code, with concerns most recently raised around the lack of detail in the regulator's consultation response.

However, TPR has urged the industry to avoid making "rash predictions", with its first DB funding code receiving "general support", despite concerns around the proposed twin track routes.

In addition to this, Fairs stated that the "strong" package of measures introduced in the act will make the regulator’s powers “more efficient” as well as introducing further deterrents against behaviour that risks savers’ benefits.

“The changes in the act will also help us drive better standards across the schemes we regulate and better equip us to protect savers,” he stated.

In particular, Fairs highlighted the enhanced information gathering powers, stating that these will “significantly” aid investigations by giving more tools to progress them “effectively and efficiently”, including by compelling people to attend interviews.

He acknowledged, however, that the new powers included in the act will involve updating codes and producing new guidance, confirming that the regulator will work with industry to ensure the powers are understood.

Indeed, uncertainty over the impact of the extended powers has persisted in the industry, although research published by Sackers today (16 February) revealed that 43 per cent of trustees and employers are unconcerned by the powers.

Commenting on increased requirements around climate change, Fairs also confirmed that the regulator will be launching its own climate strategy later in spring, which will explore these issues in more depth.

“Our strategy will take a targeted, forward-looking approach and suggests that a landscape of resilient schemes that protect savings from climate risk is within reach,” he stated.

“This strategy will be comprehensive in setting out how TPR can help trustees meet those challenges – as well as how we can play our part in the low-carbon transition agenda.

“Unfortunately, in this area, as in most if not all areas of life, there is no free lunch.”

More broadly, Fairs argued that a scheme that does not consider climate change is “ignoring a major risk” to pension savings, as well as missing out on potential investment opportunities.

“Now these new measures thoroughly bake in that consideration for schemes in scope and trustees are expected to step up and put climate change at the heart of scheme governance,” he added.

TPR has also previously called on pension schemes to give greater consideration to climate change, after research revealed that a "concerning" 21 per cent of schemes felt that climate change was not relevant to their scheme.

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