New code of practice on funding defined benefits

The Pensions Regulator has published a new code of practice on funding defined benefits to take account of its new statutory objective ’to minimise any adverse impact on the sustainable growth of an employer’, which following parliamentary approval will replace the existing code in the coming months. Although not currently in force, the regulator encourages all trustee boards to take the new code into account as far as reasonable in any ongoing valuation process.

Subject to some differences, the main messages follow those set out in the regulator’s consultation document, which was published last December.

In particular, the code: recognises that a strong, ongoing employer alongside an appropriate funding plan is the best support for a well-governed scheme; recognises that trustees need to comply with their fiduciary duties and ensure that scheme benefits can be paid as they fall due, while employers need to run their businesses, grow them as appropriate and ensure that they are able to provide the pensions they have promised; provides that trustees should adopt an integrated approach to risk management across the key risk areas to funding, namely employer covenant, investment and funding-related risks; and has nine principles underpinning it, which include working collaboratively, managing risk, seeking balance with the sustainable growth of the employer and taking a proportionate approach according to the scheme’s size, complexity and risk…

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