The Pensions Regulator (TPR) has confirmed plans to finalise the Defined Benefit (DB) Funding Code “in the coming months”, whilst its consultation response on value for money is expected to be shared this summer.

Speaking at the Pensions Age Spring Conference 2023, TPR general counsel and director of governance, risk and assurance, Anthony Raymond, shared an update on a number of recent regulatory developments, emphasising the need for trustees to be aware of the regulator's expectations.

Value for Money

In particular, Raymond provided an update on TPR’s work around value for money (VFM), confirming that the regulator intends to publish its response to the recent joint consultation, which closed on 27 March, in “summer”.

He also revealed that the responses received to the initial discussion paper acknowledged the “critical importance of ensuring pension savers get value for money, but also acknowledged the real difficulty of doing this in a meaningful way”.

“The majority of defined contribution (DC) savers do not engage with their pensions,” he continued. “In a sense, the success of auto-enrolment is of course built on inertia. However, in a system where savers do not actively select the services or products they are using, it is incumbent on those governing pensions to have a real focus on what matters the most, to ensure that all savers receive value by default.

“The consultation closed on the 27 of March and we will be analysing responses with a view to putting the consultation response in the summer. We expect the value for money framework to generate a virtuous circle of improvement and make DC pensions better value all round.”

In addition to this, Raymond confirmed that TPR has begun work on its regulatory initiative to ensure that DC savers are benefiting from the current rules, looking to ensure that trustees of DC schemes are complying with the new value members regulations that came into force in 2021.

“We will contact selected schemes about their value for members assessment, including those that have failed to do so. Where improvements in compliance cannot be evidenced, TPR will ultimately expect trustees to wind up and consolidate into a better run scheme,” he stated. “Trustees can expect for us to contact them later this year.”

DB Funding Code

Raymond also said that TPR had been “really pleased” by the level of engagement with its DB Funding Code consultation, confirming that the regulator is now analysing the responses, with a view to finalise the code to reflect these responses alongside the final regulations “over the coming months”.

However, Raymond emphasised that the regulator will continue to engage with the industry following this, stressing that “industry will have enough time to prepare for the changes, which result from the funding code”, with the code now expected to launch in April 2024, rather than October 2023.

Commenting on the new code more broadly, Raymond clarified that whilst the context has changed since TPR’s first consultation, there has been “plenty of opportunity to see our approach work”.

“The purpose and direction of DWP regulations and our code remains appropriate,” he continued. “Long-term planning and risk management remain key tenants of good scheme management across all market conditions. The existing code and related guidance will remain in place until publication.”

Raymond also emphasised, however, that TPR will look to support trustees as they transition into this new regime, including reviewing its associated funding guidance and how it might engage with schemes approaching their valuation.

“We'll also be consulting on the information we expect trustees to provide in their statement of strategy and related guidance, including the covenant and investment guidance," he stated.

General Code

Raymond pointed out that there is another code on the way in the form of the General Code, which brings together updates on 10 existing codes practice into one set of expectations around governance and administration.

However, Raymond stressed that while the new code looks different, the standard it sets out are largely familiar.

Despite this, he revealed that TPR’s research suggested that some trustees still fall short of the standards or are even unaware of the existence of these payments.

He continued: “Governing bodies should at least be aware of where they fall short of our expectations and have clear and realistic plans in place to put those issues right.

“The results of our recent 2022 annual survey of trustees of DC trust-based schemes show some trustees of micro and small schemes are unaware of TPR’s codes of practice or have never used them at all.

“Despite extensive engagement during consultation on the code, less than one quarter of the trustees of these schemes were aware that the new code was set to be introduced.

“We expect scheme governing bodies to be able to demonstrate that they have appropriate procedures and policies. Those that don't should take action to improve their scheme governance.

“Trustees of DC schemes unable to meet our expectations should consider whether their savers would be better off in a larger, better running scheme.”

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