De-risking – Feature
What should de-risking look like for DB schemes in a world of rising gilt yields and double-digit inflation? Mona Dohle takes a look.
between achieving some form of consistency of measuring funding standards without being too prescriptive. Enter a second DB funding consultation, which launched in July to address the question of securing retirement incomes without bankrupting sponsors. Many readers will be aware that when the regulator launched its DB Funding Code consulta- tion in 2020, it was criticised, particularly over the suggestion of a “fast track” approach to assessing funding standards in an attempt to simplify the process.
Though perhaps not intended by the regulator, the word “fast track” does not invoke positive connotations for many trustees, raising the question: fast track to where? The regulator found itself being accused of pushing forward the prospect of buy- outs and, by extension, the death of DB schemes. This criticism stuck throughout the introduction of the Pen- sions Schemes Act last year, where the requirement of “low dependency” for mature schemes had a mixed response. In a nutshell, the regulator expects schemes to be invested in lower risk investments by the time they reach maturity.
The regulator elaborated on this with the draft consultation on the DB funding rules, which launched in July and are set to close this month [October]. Again, the industry was up in arms and David Robbins, senior consultant at Willis Towers Watson, summed up why feelings were strong: “Today’s draft funding regulations formally resurrect the idea that deficits should be cleared as quickly as the employer can reasonably afford, after this was dropped it 2014,” he said. Consultants, industry experts and trustees warn that this focus on low dependency could have the opposite effect. Charles Cowling, Mercer’s chief actuary, warns that the regulations are set to accelerate the endgame of British DB schemes over the next 10 to 15 years and research by pension consultant Lane Clark & Peacock (LCP) warns that this requirement could bankrupt hundreds of final salary scheme sponsors.
Chicken and egg
While the regulator does not specify which assets schemes should invest in, it defines low dependency as “sufficient assets
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