This paper sets out the USS trustee’s view on the proposed defined benefit code of practice, as set out in the Regulator’s consultation document dated March 2020. However, in summary, the trustee believes the following issues require further consideration before the code is finalised.
- The use of a dual track compliance regime is understandable, but ‘Fast Track’ approval and its requirements must not explicitly or implicitly become the benchmark expectation for an acceptable funding approach for DB schemes;
- Similarly, schemes which depart from a ‘Fast Track’ approach should not be required to explain their strategy in terms of deviation from ‘Fast Track’;
- A ‘Fast Track’ may still place undue pressure on trustees to consider funding in terms of compliance with the regime rather than what is appropriate for their scheme;
- Greater thought needs to be given to the unique elements of open schemes, particularly if a Long Term Objective is to be required (and the Regulator sets some detailed requirements for such an Objective);
- The ability to acknowledge and utilise stronger and longer-visibility employer covenants needs to be reflected, particularly where there are strengthening or supporting factors such as detailed expert third-party covenant advice, multiple employers, some element of public sector exposure and so on.