U.K. defined benefit plans manage a collective £1.7 trillion ($2.02 trillion) in assets, and there are roughly one million participants still contributing to them, DWP said.
The new rules were prompted by the Pension Schemes Act 2021, which called for a new framework for regulating DB pensions after some high-profile pension funds transferred to the Pension Protection Fund, London. During the law's passage, "there were concerns raised that open schemes may be forced into inappropriate de-risking and that this may lead to unnecessary additional costs, and an end to such schemes," the draft regulations said.
The changes aimed at protecting pension fund participants would contribute to "clearer funding statements" and help trustees undertake longer range planning, the DWP proposal said. It calls for TPR to review those funding and investment plans, and for trustees to report on how they are meeting their targets.
Once a pension fund has achieved "significant maturity," it would have to have "low dependency" on the employer in terms of both investment and funding strategy, the proposal said. Underfunded plans would need a recovery plan for reducing the deficit as soon as possible. DWP also proposed new rules for measuring the strength of the employer covenant, an employer's legal obligation and financial ability to support the pension fund.
TPR CEO Charles Counsell said in the DWP statement that the proposed changes would allow TPR "to regulate DB scheme funding more efficiently and robustly in the future." TPR will consider the DWP proposed rules as it works on its own DB funding code of practice, expected to be released in the fall, Mr. Counsell said.
Jonathan Camfield, partner at U.K. investment consultant Lane Clark & Peacock, sees the proposed changes as "a welcome milestone in the long and winding road towards a new framework," but said in an emailed statement, "we are still some way from a finished product."
After a 12-week DWP consultation on the proposed changes, TPR will publish its own updated funding code, "which will show in detail the extent to which government and regulators have listened to industry concerns about the potential rigidity of what was proposed," Mr. Camfield said.
"Trustees and sponsors should already be preparing for this new world, with a particular focus on long-term journey planning and a deep understanding of the strength of the 'covenant' of the sponsoring employer," he said.
