Employers should be 'collaborative and transparent' in DB pension talks

THE PENSIONS REGULATOR (TPR) has urged employers and trustees to “work in a collaborative and transparent way” on scheme funding in its latest defined benefit (DB) code of practice.

The code, which was laid before parliament this week, addresses the watchdog’s new obligation to consider the impact of scheme funding on a sponsor’s plans for sustainable business growth, sister title Professional Pensions reports.

It sets out nine broad principles including a call for trustees to take an integrated approach to funding, covenant and investment risks.

The regulator said the code was part of a significant change in approach that recognised that a strong ongoing employer alongside an appropriate funding plan was the best way to support a scheme.

TPR interim chief executive Stephen Soper said the revised code sets out how it will balance its current obligations to members and the Pension Protection Fund (PPF) with its recently-added objective “to minimise any adverse impact on the sustainable growth of an employer”.

Soper said employers and trustees should be able to agree suitable funding plans “in the vast majority of circumstances”. However, he added: “This can only be achieved by employers and trustees working openly and collaboratively.”

A range of critics, including the Trades Union Congress (TUC) and Confederation of British Industry (CBI), condemned the plan as too restrictive.

In discussing employer covenant, the code recognises firms will often need to invest to run and grow their business. It therefore urges trustees to “understand what plans the employer has and whether calls on the employer’s resources could affect its sustainable growth” and hamper its ability to support the scheme.

Alongside the code, the regulator published its third annual funding statement, aimed at schemes with valuation dates between 22 September 2013 and 22 September 2014.

TPR encouraged trustees facing difficult negotiations make greater use of flexibilities in the funding regime. Analysis found most schemes expecting an increase in deficit at their 2014 valuations should be able to manage the impact of this through the flexibilities available.

The watchdog said an open dialogue between trustees and employers were essential, and trustees must keep risk levels and funding strategies under review.