Trustees of U.K. defined benefit funds will be required to set their own targets for recovery plans and deficit repayment schedules under a proposal by the Pensions Regulator.
In a consultation published Tuesday, the regulator proposed that plans be provided with a "fast-track" option for funding assessment in addition to a current tailored one under the new funding code, which is set to go into effect at the end of 2021.
Plans would be expected to reach fully funded status with 15 to 20 years under fast-track compliance. They would also be expected to have a low dependency on their employer covenant — the sponsoring employer obligation to provide funding to its pension funds — and be exposed to investments that have high resilience to risk, TPR said.
TPR is also proposing that for those trustees who cannot meet fast-track guidelines, or choose not to, tailored approaches to funding assessment will continue to be available. These trustees, however, will be expected to support their chosen approaches with evidence, including how they propose to manage additional risk, and may be subject to greater regulatory scrutiny, TPR said.
TPR is also seeking views on the extent to which the employer covenant should remain a key aspect of funding assessment and for how long.
"Today we are setting out our expectations about how trustees should manage risks in an integrated way when planning their scheme's long-term funding and investment strategies," David Fairs, executive director of regulatory policy at TPR, said in a news release.
Trustees should aim to reduce their plans' reliance on the sponsoring employer as plans mature because they will be more vulnerable to risks associated with poor funding levels and shorter investment horizons, Mr. Fairs added.
"The consultation now makes clear that bespoke cases will also be tested against the fast track approach, and only approved if they can justify how they deviate from fast track," Paul McGlone, partner at Aon, said in an emailed comment.
"That could substantially raise the bar for schemes which don't meet fast-track," Mr. McGlone added.
"Remaining open schemes will be hit particularly hard, with the same requirements applying to open schemes as closed schemes. This could force further DB closures by the back door, by pushing up future service contribution rates, and ultimately lead to the acceleration of the disparity between the security of accrued DB benefits and the level of pension provision for future service and future generations," Susan McIlvogue, head of trustee DB consulting at Hymans Robertson, said in an emailed comment.
The proposal could force more stressed employers into insolvency, she added.
TPR is seeking responses from pension executives and wider industry participants by June 2.