Source · Select Committees · Work and Pensions Committee
Recommendation 4
4
Accepted
Paragraph: 45
Work with open DB schemes to address funding code concerns and report back to Parliament.
Conclusion
Open DB schemes help meet two important objectives: providing adequate incomes in retirement and investing in UK productive finance as they have greater capacity for this than closed schemes. Those responsible for running DB schemes have long expressed concerns that the Funding Code would force them to de-risk unnecessarily, increasing the costs to employers and resulting in their premature closure. While we welcome the additional flexibility in the revised Funding Regulations, it is essential Defined benefit pension schemes 55 that DWP and TPR work with open schemes to address the remaining concerns— particularly around the employer covenant horizon—and report back to us on how they have done so before the new Funding Code is laid before Parliament.
Government Response Summary
The government states that TPR's new funding code includes a specific chapter and guidance for open schemes, and updated covenant guidance was published in December 2024, developed through consultation with open schemes. It commits to monitoring the effectiveness of these new regulations and guidance.
Paragraph Reference:
45
Government Response
Accepted
HM Government
Accepted
DB schemes will remain an important part of pension provision for significant numbers of future pensioners. Members of schemes that continue to admit new members should be able to rely on the benefits they build up, in the same way as members of schemes that are now closed and in the run- off phase. TPR’s new funding code includes a new chapter specifically for open schemes and extensive guidance on the assessment of covenant support and the time horizon over which employer support can be relied upon. In December 2024, TPR published updated covenant guidance for trustees of DB pension schemes. The guidance aligns with the DB funding code and provides the market with greater certainty over how TPR expects trustees to assess their employer covenant. It embeds good practice and encourages consistency across schemes. Both the code and the covenant guidance were developed through consultation with open schemes. We will work with TPR to monitor the effectiveness of the new regulations, code and associated guidance as it is implemented.