The UK regulator's intention to do away with automatic scrutiny of recovery proposals exceeding a decade has been welcomed by Hymans Robertson, which argued that the previous approach could have inadvertently increased deficits.
Patrick Bloomfield said the 10-year trigger in place previously could have meant trustees pursued too risky an investment strategy. He noted that the trigger could have "inadvertently encouraged" both trustees and sponsors to consider such an approach with the aim of lowering the technical provisions on which deficit reduction payments would then be based. "The problem was not recognising the amount of risk resulting from a falsely easy technical provisions target and keeping too much risk on – which blew up with the movements we've seen in Gilt yields", he said.
Joanne Livingstone, technical director at Punter Southall, noted that the emphasis on sustainable growth would have "real implications" for both sponsors and trustees. "The wording of the objective and resulting new Code of Practice will need to be extensively debated", she said, in reference to changes to the code on which the regulator said it would consult in the coming months.
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