TPR’s Code Of Practice

Author:Ms Julia Ridger
Profession:Smith & Williamson

If you are a sponsor or trustee of a defined benefit pension scheme, you should now be fully aware of TPR's Code of Practice published in July. This helps trustees and sponsoring employers to agree funding plans that provide security for retirement savings, while enabling employers to invest in sustainable growth.

The code is part of a significant change in the regulator's approach to DB schemes. It recognises that a strong ongoing employer alongside an appropriate funding plan provides the best support for a well-governed scheme.

The code urges trustees and employers to work in a collaborative and transparent way to consider the impact that scheme funding proposals may have on the employer's plans for sustainable business growth.

It also recognises that risk is inherent in pension schemes and expects trustees to identify and manage the key risk areas of investment, funding and employer covenant.

At Smith & Williamson, we see this as a big step forward in safeguarding people's defined benefit pensions. A clear integrated risk management plan and closer collaboration between employers and trustees will make sure schemes are run more effectively. Schemes should take account of the risks and cash contributions the business can support and ensure this is reflected in both the investment and funding strategy.

Looking at the code in more detail, one of the most important changes for employers is the re-wording of the requirement to eliminate deficits, "as quickly as the employer can reasonably afford," to instead consider the appropriate period in which to do so in view of the risks to the scheme and impact on the employer. TPR says this is not a change of policy, rather a clarification of its true stance so this clarification will be greatly appreciated by employers, as recovery plans can now be implemented over longer periods with TPR's agreement.

Employers will also appreciate the watering-down of wording that appeared to require trustees to scrutinise the employer's dividend policy against the impact...

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