Trustees should not forget to focus on “the big picture” before delving into the details of the Defined Benefit (DB) Funding Code with their advisers, LCP has warned.

The Pensions Regulator (TPR) DB Funding Code officially came into earlier this month, with the regulator now set to improve its regulatory grip to ensure savers get the benefits they expect.

The firm said that the DB Funding Code has evolved “significantly” from where it started and identified three areas of common misconception from an investment perspective.

The first area was the need to take action to get a “strong” funding position quickly, but LCP’s analysis showed that two-thirds of schemes already have a surplus on a gilts + 0.5 per cent per annum basis.

It stated that for many that have not reached that secure position yet, there was "ample time", as while 10 per cent may need to achieve low dependency within six years, 40 per cent have more than 15 years to get there.

Another area of misconception was the idea that once schemes reach low dependency, assets should be expected to deliver low investment returns.

However, LCP said schemes could justify a long-term portfolio with a reasonable allocation to growth assets, possibly targeting an overall expected return of gilts + 1.5 per cent to 2.0 per cent per annum.

In addition to this, trustees have full flexibility on how any surplus above full funding on the low dependency funding basis can be invested, for example, it can be 100 per cent equities.

The final misconception LCP highlighted was that the new DB Funding Code was all about scheme funding.

However, the firm argued there was also a big focus on other areas including the liquidity of your investments.

It noted that the new code mentioned liquidity over 60 times, with many sensible expectations on trustees regarding understanding the liquidity of the investments held, planning for unexpected cashflows, quantifying liquidity in stressed market conditions, and documenting protocols.

The firm said now was the “ideal time” for a liquidity health check to ensure assets are well-positioned and meet TPR’s expectations.

Commenting on this, LCP partner, Jacob Shah, said that, given the origins of the DB Funding Code, there were some possible misconceptions about what it means in practice, and some trustees may not realise the level of flexibility they have in setting their investment strategies.

Adding to this, LCP partner, John Clements, said: “In the short term, we recommend trustees carry out a high-level review of their journey plan, liquidity position, and alignment with the fast-track requirements to help identify and address any potential issues early.”

Clements warned that waiting until the valuation date could be “too late”.

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