On November 21, 2024, the Pensions Regulator published the final version of Fast Track submission tests and conditions, which require the scheme's low dependency funding basis to follow the principles set out in the DB funding code.
The Regulator emphasizes that Fast Track is not risk free. Rather it is a regulatory tool representing the Regulator's view of tolerated risk where it is unlikely to engage with a scheme in respect of their valuation. It does not represent minimum compliance. In some instances, the Fast Track parameters are set above the minimum level of compliance, whilst in other instances, adopting Fast Track may not be the appropriate route.
The Regulator urges trustees to think carefully about whether Fast Track is right for their scheme and, in order to meet legislative compliance, whether a more prudent funding and investment approach is appropriate, particularly where there is very limited employer covenant support.
Schemes will need to employ assumptions that are at least as strong as those specified in the Fast Track conditions. The low dependency funding basis needs to be calculated using the "risk–free plus" approach, adopting the gilt yield curve for the risk-free element, extrapolated appropriately.
A scheme's recovery plan must be no longer than six years for a valuation where the valuation date is before the relevant date, that is, the funding level the trustees intend the scheme to have reached on a low dependency funding basis at a particular date.
The period is reduced to three years for a valuation where the valuation date is on or after the relevant date, that is, the scheme is already classed as "significantly mature".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
