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Majority of industry experts think that new DB funding regime will have an impact on their schemes and will require more work according to LCP poll

Pensions & benefits Scheme actuary and trustee actuarial services Corporate strategy DB pensions

In a January 2023 LCP webinar poll about the new DB funding code:

  • four-in-five said that they expected the new regime to have some impact on their schemes, of which a quarter said they expected this to be a significant impact.
  • around half had concerns about the extra work that will be required in implementing the new regime with a third of these stating the new regime is extra work for no benefit and a new regime is not needed.
  • 1 in 6 felt positive about the new regime and saw it as improving the security of member’s benefits.
  • 1 in 3 hadn’t decided how they felt about the new regime yet – we expect considering the impact as set out below will help them form a view.

LCP expect as many as half of schemes may currently fail at least one of the Fast Track tests and are urging trustees and sponsors to consider now how they stack up against the new expectations and whether they need to take action. Possible next steps include:

  • Reviewing investment strategy, if this is not sustainable under the new regime;
  • Considering constraints on the sponsor’s business that are likely from the new regime (eg investment plans or dividend constraints);
  • Reassessing the covenant support, including value of group guarantees and contingent assets; and
  • Responding to the consultation. Schemes open to new members may well want to do this as they are likely to be particularly impacted by the new regime.

Jill Ampleford, chair of the webinar and Head of Trustee Consulting at LCP, commented:

“The impact of the new DB funding regime can be very different depending on each scheme’s unique position. Many will see not just a change in funding but changes in investment strategy and the approach to assessing covenant support too.

But for all schemes there will be some work to do. We’re encouraging trustees and sponsors to do the work as soon as possible to understand what the new regime means for them.”

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