TPR has been consulting on the Statement of Strategy, a key part of the new funding code regime being fully introduced this year. We have recently submitted our response and the article below is an edited version of our Executive Summary.
The Statement of Strategy has several (potentially conflicting) objectives and we believe that some relatively simple changes could significantly improve the success in meeting some of these aims.
In particular, we would comment on the objectives as follows:
Obtaining factual information for TPR on valuations – we believe this is achieved, but question whether all of the information is really required for efficient regulation. Information that is unlikely to be used in most cases should be removed wherever possible, and information that is not critical to the strategic message should be in an appendix or similar to maximise the usability of the document for trustees and employers.
A useful long-term planning and risk management tool for trustees – the initial template is not a ‘reader-friendly’ document likely to encourage engagement or use as an ongoing risk management tool. We fully support the desire to prompt these strategic conversations between trustees and employers, and understand a desire to monitor/document these, but question the proposed format and style.
Obtaining strategic information for TPR on the direction of travel of the industry (“a more effective ongoing assessment of the DB landscape”) – this aspiration may be hindered as some schemes or sponsors will be wary of committing in writing to a course of action (e.g. buy-in within five years) even if it is something they are hoping to achieve.
We provided with our consultation response an example revised statement based on TPR’s sample wording, which still contains most of the original information but would be a step towards providing a more meaningful and accessible document for trustees and employers. Our full consultation response offers ideas on how this could be simplified further.
We are very mindful of the need for proportionality and whilst this is referred to several times within the consultation document, there appears relatively little difference in the information required. There will be a non-trivial cost associated with collating and checking this information, prior to discussing and agreeing this document, that seems disproportionate for the likely benefit to trustees and employers. This is particularly true for smaller schemes, those that are well funded and/or meet (large parts of) the Fast Track requirements.
Even a simple step of requesting assumptions and cashflows for 50 years rather than 100 would eliminate the need for hundreds of data entry points. This should not materially undermine the data (particularly for closed schemes) or the Regulator’s ability to identify and engage with higher-risk cases. Whilst the additional costs in providing more data might be marginal, they still exist, particularly if numbers need to be checked or there are inefficiencies in the submission system. A more extreme suggestion would be to cut these back even further (e.g. to just the next five to ten years) given the actuary is already providing duration calculations at the valuation date and relevant date.
Finally, we strongly encourage TPR to think very carefully about the user experience (rather than purely their own efficiency in collating and analysing submissions) when determining the final submission method. The statement must be easy to populate and amend in order to minimise unnecessary costs.
Our full response and suggested changes to the template are below.
