Funding defined benefits

John Small: Morning everyone. I can see the number of attendees still going up quite quickly so we will leave it a few more second and then we will get going.

The number of attendees has slowed somewhat so we will get started. So good morning thank you for joining the Webinar today. We are thinking about funding defined benefits and the webinar has been run jointly by First Actuarial and Gowling WLG. Liz and Eley are experienced pensions lawyers, they work for Gowling WLG on a number of defined benefit schemes and support both trustees and sponsor.

Marcos works alongside me at First Actuarial. He is a scheme actuary but he does also support pension scheme sponsors as well on several matters. Our speakers plan about 30 minutes covering the slides and after that there will be an opportunity for questions. There is a Q&A Box on Zoom that you can use to type your questions anytime during the session and we will cover as many as we can of those.

The session is being recorded and the recording and the slides will be made available after the session but without further ado, I will hand over to Liz who will start us off.

Liz Williams: Thanks John. Marcos and I last spoke together two years ago on the current trajectory of the Pensions Regulator. That was in January 2020 and the world felt like a very different place then, for lots of reasons.

One of the most tangible changes we've seen to the pensions regulatory landscape since then has come in the form of the Pension Schemes Act 2021 which received royal assent just under a year ago, but with many of the key changes only coming into force in October last year, and a number of those changes yet to be brought into force.

We're not going to focus on the strengthening of the Regulator's powers introduced by the Act - there are two other Gowling webinars you may want to take the time to view to get up to speed on those areas. Instead, we're focusing today on changes to the funding of DB schemes - what we know so far, what we don't and what's coming down the tracks.

Given the significant changes introduced by the Pension Schemes Act 21 more generally, the change to the funding requirements is not revolutionary - more evolutionary - reflecting a direction of travel which TPR has been encouraging trustees to follow for some time.

For example, a theme of recent TPR annual funding statements has been a focus on encouraging schemes to plan for the long term. And this very much fits into the wider, long-standing expectation that schemes take an integrated risk management (IRM) approach to scheme funding, covenant and investment. What is different is that the Act now places the long term funding target as a specific statutory goal for defined benefit schemes.

Of course, the change to the scheme funding requirements sits alongside the other, high profile regulatory changes introduced by the Act. And whilst those regulatory changes are definitely prompting more employer interest and attention in relation to DB schemes, and we're certainly all seeing that in practice, it's the Act's new funding requirements which represent the biggest direct change for trustees.

In short, this is the requirement that the employer and trustees agree a long term strategy for ensuring benefits can be provided over the long term. It builds on the existing scheme-specific approach to DB funding as set out in the Pensions Act 2004.

In practice, many schemes will have already started long-term planning, with schemes a fair way down the route of buy-in policies, liability-driven investments or member option exercises underway or indeed completed. Much of this would be considered to form part of sensible, ongoing risk management for the scheme. Indeed, in the consultations that preceded the Act the Government estimated that 80%25 of schemes already have some form of long term funding strategy. So not a massive game changer in that sense.

But the concern expressed by TPR and DWP was that sometimes this presented itself as a loose set of objectives and aspirational rather than a defined strategy that drives long term thinking and planning. i.e. ensure trustees engage properly in this process and think beyond the limits of the immediate triennial valuation.

There were also concerns in the lead up to the Act's introduction that recovery plans remain too long (on average around 8 years). With 1/5 of schemes called out as having a recovery plan or more than 10 years. Considered to be a real risk factor when the position of even very a strong sponsor can decline rapidly. So, this is an important baseline expectation as to how trustees are, going forward, expected to focus on long-term planning for their schemes.

There will be some teeth to reinforce this new aspect of the Act: a breach of the requirements can give rise to civil penalties (under existing legislation) of up to:

• £5,000 in the case of an individual, and
• £50,000 in any other case.

It will also be a criminal offence to provide false or misleading information to TPR in relation to the statement of strategy.

So what are the two new funding requirements introduced by the Act?

The strategy - this sets out the long term funding and investment target for the scheme. The technical provisions must be calculated consistently with this strategy. Must be agreed with the employer. Must be kept under review.

The key point being that the strategy will influence all areas of scheme funding. The statutory funding objective, recovery plan and technical provisions will all need to be consistent with the strategy. Means in practice, the technical provisions become milestones on route to achieving the long term objective. Must be submitted to the Regulator.

The chair's statement - this requires trustees to reflect on the success of the funding and investment strategy. How risks are being managed or mitigated. A reflection on past decisions and lessons learned, where relevant. This aspect requires consultation with the scheme sponsor.

The statement, in effect, is how the strategy will be regulated - a way of demonstrating that the strategy isn't just a one-off decision but something that is revisited by the trustees and reflected on. Transparency and accountability about risks being taken.

So when will the long term funding target come into play? The Pension Schemes Act 2021 received royal assent on 11 February 2021 but importantly the scheme funding sections have not yet come into force.

What we're all waiting for here are the DWP's draft regulations on funding expected Feb 2022 at earliest. The expectation is that the long term funding target will apply to triennial valuations after 2022. What this doesn't mean is that trustees and sponsors can just sit tight and not take any action until then. And we' come on to what you can do in a moment.

Meanwhile, we await the draft regulations and a new Code of Practice, which will set out the detail, particularly around timings of the new requirements, and the contents of the statement. The regulations are expected to set out the matters to be taken into account when considering whether a recovery plan is appropriate - including the nature and circumstances of the scheme. This might include the length of the recovery plan and the affordability for the employer.

We also expect more detail around how and when the strategy document is shared with TPR, perhaps as part of triennial valuation documentation. All in all, this is another area introduced by the PSA 2021 which gives TPR greater visibility of what's happening in practice, and consequently another opportunity for it to intervene where it considers appropriate.

Employers and trustees should engage from now to agree a long-term funding and investment strategy for their schemes. For some trustees the end game solution will be buy-out or entry into a consolidator. For those with a stronger employer the option might be run-off. For open schemes a different approach will be needed. Eley and Marcos will come on to mention the Regulator's recognition of the different position of open schemes.

Nothing to stop you already taking this approach pending regulations and further guidance from TPR. Means you're on the front foot when the regulations are published. And considering the scheme's long term target is consistent with TPR's existing expectations - TPR's annual funding statement 2021 makes clear that whether schemes now have an improved funding position than was anticipated, perhaps as a result of the rise in yield on gilts, or are still behind target, long term thinking remains key.

This is also likely to place trustees and employers in a better position in the event of future possible TPR interest. We'll come on to cover what we're already seeing in this area shortly, but there is no doubt that a joined up approach to long-term planning will best protect trustees and employers following the introduction of the increased regulatory TPR powers.

So I am going to handover to Eley.

Eley Lamb: Thank you very much Liz. Good morning everyone. Yes I thought it would be helpful to start off with an overview of where we are. This development of the Government and the Regulator's approach to scheme funding. It started back in March 2018 we had the White Paper on protecting DB pension schemes which you may remember and then the Regulator's first consultation on the new DB funding code was not published until two years later in March 2020 and this consultation closed in September 2022. Meanwhile we had the Major Schemes Bill published in January 2020 and received Royal Assent around a year later in February 2021. Alongside this the annual funding statements in 2020/2021 and it is likely that we are going to have the annual funding statement for 2022 as well as the new draft funding regulations. That Liz mentioned before we see the second consultation on the revised funding code. The current forecast from the Regulator is that the second consultation will be published in late summer 2022 so about two years since the first consultation and in terms of when it is going to take effect our current best guess is early 2023.

So what do we know so far? Headline grabber from first consultation on the DB funding code is the twin track approach - the concept of submitting an actuarial valuation on a "Fast Track" basis - demonstrating compliance with minimum standards. Or a "Bespoke" basis for any valuations that do not fit into the Fast Track route through the valuation process, where Trustee will need to explain why it is reasonable to take a different approach. The Fast Track is intended to be easier for the Regulator to sign off. Marcos will give more detail from actuarial perspective later on.

What else do we know? We know integrated risk management remains key and we know that the Regulator has a focus on reducing the reliance on sponsor covenant over time. The Regulator is keen that mature schemes should not carry on a larger scheme that they can reasonably support and that goes to Liz. Encouragement of all schemes who have placed their reliance on the covenant so we have not seen the second consultation yet but we did receive an interim response to the first consultation in January 2021 and this was one of the largest response well the largest response that the Regulator's ever had, 127 responses and some 6,000 comments.

Understandably the Regulator has said it needs to work through all of these comments and the issues raised as well as learn from the draft funding regulations that Liz mentioned, we were expecting spring to help develop the fast track guidelines. So the interim response was a short response and it drew out the themes of the concerns raised by the respondent and some of these were comments around the concern that flexibility would be lost, does benchmarking the bespoke route against the fast track results in a loss of flexibility because every deviation from the fast track needs to be explained and justified. Will the bespoke route be more burdensome in terms of documentation and would it result in more Regulator engagement which some schemes regard with a degree of apprehension.

And then moving on to the next slide another concern that was raised was open schemes and the different positions that open schemes compared to closed schemes and how that would be addressed in the new funding requirements. As you can see from the slides, we have two quotes there, one from the Government and one from the Regulator and these indicate that they understand there is a difference between these schemes.

We know the Regulator wants schemes to reduce reliance on employer covenant over time - and its view is that mature schemes should not carry a larger risk than their covenant can reasonably support - here it recognises that that doesn't apply in the same way to immature schemes which might reasonably invest in more volatile and illiquid assets. The government has given an assurance that it won't treat open schemes in the same way as closed schemes, but how that translates in practice remains to be seen.

What do we not know? Well much of the detail. The key principles from the first consultation are likely to be refined in light of all the consultation responses, the ongoing challenges presented by COVID-19 and Brexit, as well as they will need to be consistent with the new funding regulations. We do not know exactly how the Regulator intends to distinguish the treatment of open schemes and we do not know how TPR intends to engage its schemes to enforce these new funding requirements.

And finally we do not know when the DB funding code is going to be introduced. What I think we can be sure it is unlikely to be this year and it may well be early next year.

Now I am going to pass you over to Marcos who is going to talk to us about from an actuarial perspective on long term funding habits.

Marcos Abreu: Thank you Eley. Good morning everybody. I am just going to build on some of the things that Liz and Eley have introduced so far and look into a little bit more of the detail. For those of you that attended the webinar a couple of years ago that Liz mentioned earlier, those are very much the sort of key things that you as trustee and the Regulator is looking for in terms of funding strategy. I am not going to do into the detail that we went through on that occasion but just as a brief reminder, just some of the things that we need to look at so if we can move to the next slide please.

So one of the important things to think about in terms of the long term target is that the intention is that target should be what is being called a low dependency and low investment risk target. So the idea of this graph, which you may have seen before certainly it is a variation of something that the Regulator put in the consultation just to illustrate the principles, is that the dot on the left hand side there at the top represents your scheme now in terms of the amount of the investment risk that it has taken and then over a period of time the intention is, certainly for closed schemes, that dot should move to the other one on the right hand side which is labelled LTO long term objective.

At that point the scheme should be taking a lot less investment risk and be more funded that it relies less on the covenant support of the employer. Now I'll come on the amount of time that you have to get from one point to the other in a moment. But before doing that, the other concept that is coming is this idea that you should have a journey plan on how you are going to get from A to B if you like, so those lines there in the graph, the green line and the other lines are meant to represent journey plans.

So if I should take the green one in that case that is trying to demonstrate is the trustees and sponsor of a particular scheme this side that they are going to keep the existing amount of investment risk and therefore return going for a while until they get much closer to the target and then they decide to de-risk. Obviously there are an infinite numbers of ways that you can get from A to B in this case and the other lines are just meant to represent gradual de-risking of an investment strategy over time which is obviously something that lots of schemes.

I mentioned the amount of time that schemes are expected to have to get from A to B and that is very much meant to be drive by the maturity of the scheme and the consultation talks about significant maturity and actually gives three different way it could be measured. Now do not worry too much about this graph but it is just an illustration of how we are trying to assist clients actually measure duration into the future, so the line to worry about here is the blue line and you will see that over time because this is a closed scheme the schemes get gradually more mature.

Eley mentioned long-term schemes and if you were to do one of these projections for an active scheme that line could look very, very different. So just to bear that in mind but I think this type of approach is very helpful for trustees and also I think this is quite representative of a lot of DB schemes. In this particular one the consultation talks about getting to the LTO when duration is down to 12 to 14 years, which could be in five to ten years, and that we think is going to be something that a lot of schemes are going to be experiencing. It is definitely something that you need to be thinking about now because you have only probably two or three valuation cycles to think about unless you are particularly a mature scheme or an open scheme indeed.

Moving on to the next slide, again you may have seen some of this modelling or similar in the past and the intention here is just to highlight some of the things that you could be doing with your advisors and options that you should be talking with the sponsor about what that long term objectives should be and then doing some modelling.

The idea here is to you can look at the funding and the investment together so this model would allow you to look at variations in contributions and also different investment strategies so if you like the journey plan that I showed you earlier different ways of getting from A to B. I am not going to sort of go through all this now but you were meant to be looking at risk and what this does and is another important aspect of this new funding code is that you need to make sure that the funding strategy and the investment strategy are aligned so another way that you could look at it. This is something that our investment team use here and you are interested in the detail perhaps we should have a separate conversation but I just wanted to highlight some of the things that we can use to help trustees and sponsors come to their strategy.

So we will have the slides afterwards and a lot of the modelling and discussions they can sound very complicated and indeed consultations run to nearly 2,100 pages and who knows what the next one will look like, but if I can leave you with these simple questions to think about if you have not already. You may have seen these before. Take our slide if I am going to point to one slide, it is this one and think about how you are going to answer those questions and also the other thing I wanted to point out is it is important to involve the sponsor in conversations about long term objectives and journey plans. OK.

Just to touch on something that Eley has already mentioned in terms of actuarial valuations and it is effectively the submissions and this is just a representation of what Eley showed earlier. The proposal is to have a twin track approach so you have a fast track, easier to get sign off from the Regular but the bar is likely to be high, with everything else being bespoke which gives schemes more flexibility but they will come with more justification.

So just drilling down into fast track and bespoke a little bit more so fast track the intention certainly from the Regulator's point of view is far to say that it should be something that is easier to adopt and it sort of encourages a lot of schemes to do, and from a resourcing point of view also something that will help to get schemes over the line in terms of actuarial valuation submissions.

I think interestingly enough the first consultation did give a lot of clues as to the criteria that would be used to first track the certainly proposed and I think certainly across my client base and colleagues. I think it is fair to say that the bar is set fairly high with criteria around how you set your technical provisions, so how prudently you value your liabilities but also around the investments that are held in the scheme, lengthen recovery periods and so on.

I just put that bit in red there because I wanted to make sure that for a lot of schemes that means quite a significant jump in terms of the funding that they might be aiming for now versus what they might have to aim for in the future.

Just one other point I wanted to make here is around the fast track measure potentially being a benchmark for bespoke so that in effect would probably make it easier for the Regulator to mark the homework when it comes in and an actuarial valuation submission but there has been quite a lot of push back in the sort of certainly in this industry as to whether that is feasible and whether that makes bespoke truly bespoke and it will be interesting to see and certainly what they looks like going forward so again you may have seen it yourself. There is a lot of press there.

Bespoke is basically meant to give you flexibility, and personally and across my clients and so on I can see a lot of them are going to end up certainly as it stands today going down the bespoke route, lots of reasons why that might be. One obvious one is that they simply cannot meet the fast track criteria, and lots of schemes out there will feel that their strategy or certainly aspects of their strategy are robust enough and they have reasons to stay not actually target fast track. From an employer's point of view there is some concern around potentially the new regime leading to schemes being overfunded so they are likely to want to the understand all the implications of the new regime.

So I can see lots of reasons, I think one thing we know and it has been hammered home over and over again in terms of bespoke is this need to have an audit trail of all the advice that you take so certainly I guess when we are preparing for this webinar I think our views are very much similar on that that you need to make sure that you have got all the documentation and all the decisions that you have taken because the idea is that in future you will have to submit that as part of your actuarial valuation submission.

OK. I hope that was helpful. Just really in terms of our experience about what the schemes are doing in terms of the new DB code. I think it is fair to say that most are talking to the sponsor. It is important for the sponsor to understand the impact of the new regime what we could have on them. Lots of analysis as I have showed you very quickly a couple of graphs of how we are helping clients so it is looking at the funding, it is looking at the different investment strategies and so on.

Some schemes have already gone as far as deciding on their long term objective and they have got journey plans and so on. There are some that are still waiting. It might be that there could be changes and they do not want to do anything yet. I think it makes sense certainly for smaller schemes and so on to maybe look at this in conjunction with the actuarial valuation being a good time when you are looking at funding to look at the implications of the new code.

I think that completes my slides and I am going to hand over to Liz I think. Is that right or is Eley sorry?

Eley: It is me. Thanks Marcos. Yes. This is where we are going to have a look now at the Pensions Regulator's engagement with schemes and how they are getting involved with our client and what we are seeing there.

So traditionally as I am sure you will all be aware the Regulator typically engages with trustees around the valuation cycle. Since the Regulator's new mantra of clearer, quicker and tougher, we have seen a change in the approach. The Regulator has become more proactive and willing to intervene outside the valuation cycle, for example in response to press reports about product warnings or credit downgrades or a decline in the share price.

So TPR's corporate plan for 2019/2022, so the world was a fairly different place to what it is now, TPR said it would take forward a segmented and proactive approach to risk an intervention and it would focus on ensuring adequate DRCs and reducing the length of the recovery plans. And I think we have all seen that amongst our schemes consistency in the reduction in the length of recovery plans. The Regulator targeted particular sectors, initially these were media and publishing then in the wake of BHS retail and not for profit organisations like charities and trade unions. We had clients in these sectors receiving blanket standard letters regarding their schemes.

You also saw some schemes receiving some very active oversight with the Regulator attending some trustees meetings. One of our clients had them giving tips on governance after the meeting.

Then we had the Regulator's corporate plan 2021/2022. This is post Brexit and with the experience of the pandemic, and you can imagine this is a slightly different approach. The Regulator said it anticipated increased engagement and oversight of schemes where the employer were in financial distress and therefore with finite resource other supervision work was expected to be leaner and more focused and again this reflects what we have seen in practice.

Clients in the target sectors have received letters prompted by press reports have in the past but these letters do not necessarily need any response from the Regulator, response back to the Regulator. The letters often come in response to a particular risk event and they set out very detailed but general expectations of the actions the trustee should be doing or at least considering whether it is appropriate to do them. In a recent example the expectation is included engaging with the employer early on to understand the pension impact of the event, understanding the employer's legal obligations to the scheme and the balance of powers between the trustees and the employer and what leverage the trustees might have in negotiating with the employer and then requesting information and putting in place an information sharing protocol or where they already have one considering whether it is sufficiently robust to obtain the information they need.

There are also tips in there on doing a skills assessment for the trustee and reading the Regulator's guidance so trustees obviously need to take a view in each case but on a recent example very much like that one we concluded that where the trustee was satisfied there was no material detriment to the funding issue in the scheme then it did not need to apply to the Regulator. The trustee did care to minute its discussions and its decisions so that there was a paper trail in place when the Regulator comes calling in future.

Some trustees will have a response plan already in place and we found that useful so when something happens unexpectedly you have already got a process in place for calling an emergency meeting and carrying out an impact assessment and of course documenting it to show that the risk has been evaluated and what decisions have been made even where your decision is that no further action is to be taken right now and just continue to monitor the situation.

So that is the letters setting expectations and then the final box on the slide now there are still cases where the Regulator is taking time and working closely with trustees where it sees the most benefit can come from its intervention and we have one recent example where the Regulator took a strong view that a series of company disposals were of material detriment to the scheme. It was a scheme with a UK sponsoring employer but it was part of a global group and the share price of the UK company, had declined in recent years. TPR took the firm view that the recovery plan was too long an employer covenant was not strong enough to support that recovery period, so what do we see happen in practice?

The Regulator got in touch and it used the information gathering powers initially the trustees were concerned by having the Regulator involved but actually it strengthened their hand and they came to appreciate the engagement for the Regulator.

The information gathering powers managed to extract information in response really helpful up to date information that as sent to both the Regulator and the trustee and once that information was out in the open he made it much easier to engage in discussions with the employer and actually as a positive result of this, this has opened up the lines of communication between the trustee and the employer and they got a better ongoing relationship as a result. The Regulator was not prescriptive about what mitigation needed to be put in place but it was open to a package of mitigation rather than just one single thing and it was open to contingent assets rather than just a cash contribution.

In this case the parties decided on a company guarantee for one of the overseas' entities but there are plenty of other contingent assets options available and we asked that you renewed interest in this area particular schemes where the employer has the cashflow to make immediate contributions.

So I think that has been a positive story of experience with the TPR and I think Liz, you have got another example of engagement with the Regulator.

Liz: Yes thanks Eley. Yes we have got an example in the team where the Regulator has similarly been very engaged for some time. This case is a large DB scheme where the employer is considered to have a weak covenant and so, as I have mentioned, lots of engagement and very much in the context on the current valuation cycle. So regular meetings with the trustees, regular correspondence following those meetings and setting out in no uncertain terms the expectations of the Regulator, in terms of what the trustees should be following and considering and including appropriate advice has been taken.

In this situation the Regulator has clearly got a whole range of areas that it is considering but interestingly long term funding is increasingly been called out as something that the trustees should be considering, and the Regulator has also indicated that it might consider further action in this case taking into account the current proposed funding approach.

Interestingly actually also this is another scenario where the employer has now offered to put in place a contingent asset as a means of satisfying the Regulator as appropriate support being given to the scheme. So definitely a robust example, and more robust perhaps that in Eley's case, and very much again demonstrating that the Regulator will lean on trustees in order to ensure that they are being the appropriate monitors of the employer's behaviour and making sure that the trustees respond as appropriate.

I think this example is also just that shift in the correspondence in the case that I have just mentioned on that long term funding approach and how that fits into all the other considerations that the trustees are expected to have in relation to the scheme and where that long term funding approach if it does not fit into the Regulator's expectations. The threat obviously is of more investigation an action to follow and certainly in all these cases nobody wants to see a warning notice but indeed even leading up to that it is the time and cost and energy in responding to investigation that no trustees wants to have to deal with, or indeed sponsor.

So I think what will be interesting to see through 2022 and into next year is how the Regulator continues to engage with trustees and sponsors given its array of the new powers but also given these new funding expectations.

So just moving to conclusions now before we move on to questions and today obviously we have taken you through what we know about the expected changes to the funding regime and what trustees and employers can do when considering the long term funding strategy with some really helpful input there from Marcos around actuarial considerations but also we are just awaiting on quite a bit of the technical detail around that coming in the regulations and also the second part of the DB consultation.

So there are some areas for trustees and employers to watch this space. Certainly those draft regulations and the various forms of further consultation but key for trustees and sponsors and hopefully this has come through in the entire webinar but it is that continued engagement in relation to DB schemes so that both sides understand what the direction of travel is for the scheme so it is not set in stone but definitely focusing minds in terms of what everybody is intended to achieve.

Eley mentioned this in relation to one of the case studies but also we are definitely seeing an uptake in information sharing protocols and certainly in our client base many trustees and sponsors have now put those in place to regulate the flow of information and from a sponsor's perspective obviously agreeing that long term funding target is a real opportunity to have that conversation with the trustees about the direction of travel and for the sponsor to really have a foot at the table in terms of having that dialogue.

We have also mentioned but definitely key to takeaway is just documented the decision making so we can see that there are various situations in which trustees and sponsors will need to take professional advice be that actuarial or covenant advice or indeed legal advice. The existing DB funding code already notes that trustees should document their decisions and the rationale behind those decisions that that is absolutely going to become more necessary as we move into this new funding regime. So trustees and sponsors should absolutely make sure that they are focusing on that documentation and that audit trail for decision making setting out the issues, the risks considered and then the decision made and ultimately looking at this long term funding strategy.

So that is all we planned on covering for the main part of today's webinar/. I am going to hand over to John who is going to compare for any questions that we have that have come in.

John: Fantastic. Thank you Liz and thank you to all of our speakers for your insight and we have had quite a few questions through on the Q&A. So sorry we have got a few minutes left to go. We might not get quite to everybody but we will cover a few questions as we go.

Probably one for Marcos this one, one about the long term objective itself, asking about what sort it might be so there's self-sufficiency or buy-out, the most common from what I know but it begs a question of buy-out and in particular is there going to be the resource in the market to deal with all the schemes that might be looking to go to the market.

Marcos: Yes thank you John. I think in terms of what the long term objective should be and that is definitely a discussion and we can see that in some cases probably sponsor led buy-out is going to be an option or even once the market develops the consolidators I think the experience we have certainly is that there are some noises that are made from insurers and certainly with small schemes the tendency is that they need to be patient and wait in an orderly queue.

I think over time especially if all schemes have a long term objective and they are kind of getting towards that low dependency point where they are more well-funded certainly that provides a pipeline for the insurer's market and you would expect that they would be interested in upping the capacity I would say but there might be some short term kind of delays maybe. That is what I think. Thank you.

John: Thank you Marcos. That makes some sense. Another one here for Liz, you were talking about a particular case that you have worked on where the Regulator has been involved on a particular large scheme. Is that what you are seeing is TPR just getting involved on large schemes, perhaps ones that they are more interested even more worried about or are they looking across all sorts of sizes of pension schemes?

Liz: Yes that is a good question and actually it kind of goes to some of the discussions we have had with First Actuarial before this webinar because I think there is a real range going on. I think there is quite a lot of high level scrutiny going on in the context of valuations and I think that could be schemes of all sizes but it also goes back to what Eley was saying around focus more specific focus and more tailored letters. I do think they tend to be happening with larger schemes and medium to large size schemes. That said there is no doubt the Regulator will target employers where there is considered to be a weak covenant. I think regardless of size or what particularly for example retail sector or others sectors where the employer might have been particularly affected by the pandemic or post Brexit. So it is a range I think is the short answer and it is a range of different tools that the Regulator is clearly using to try and get trustee engagement and to deal with the point I mentioned about trustees being leaned on to make sure that they are watching out for what's going on and keeping the Regulator updated.

John: Thank you Liz and probably another question that linked to both of those that we have had and maybe one for Eley to be fair. We have heard about the Regulator getting move involved with schemes of all types. They are doing more work along the way and especially we might expect them to get even more involved with those that go down a bespoke method and they are looking for a bit more work there. The thought about resource for maybe insurance companies. What about the Regulator? Do we expect them to be able to keep this up to be able to keep going with talking to schemes and doing other things they want to be doing?

Eley: That is a really good question. Resource is a key point of what a Regulator is stretched in so many directions with Brexit and the pandemic. We understand the Regular wanted the majority of schemes to go down the fast track route and this would leave resource available to deal with a small number of schemes that go down the bespoke route but to make that work fast track needs to be sufficient accessible to the majority of schemes and it might be that initially it is more accessible and they raise the bar higher later but if it comes in as something that is too challenging and the minimum standards are too high then the Regulator could find more schemes using the bespoke group and it could challenge its resources. That said we know the Regulator is planning to become leaner and more focused so it will just continue to making choices about where it invests it's time to make the most of the resources it has available and I think it will be interesting that trustees continue to do the right thing to try and meet the Regulator's expectations.

Another point is it is not unheard for the Regulator to come back later to a previous valuation. We have had clients who have submitted a recent valuation and then had a letter from the Regulator about the one before that so make sure you document whatever you do now because it might not be the end of it.

John: Fantastic. Thank you Eley. We are just coming up to the end so we might just squeeze in one more question if that is alright. One for Marcos again there you go Marcos. Long term objectives again you have spoken about a scheme may look to set one of these, a long term objective and maybe a journey plan to get there. Do you think they will be able to change it once they fixed it? Will it be difficult to change or is it a really big decision now because it is getting set in stone?

Marcos: Yes thank you John. In fact that is a question that a couple of my clients have asked me and it seems to come up every now and again. I think like anything there has to be scope for it to be reviewed. One example I can think of immediately is that you might have a set of trustees that agreed with the sponsors to target self-sufficiency and maybe down the road there is some corporate activity or the sponsor decides that they would quite like a buy-out so there needs to be a mechanism where the target can be updated but I can see other miles and other things that happen changes to the circumstances of either the scheme or the business that might mean that a change is required. I imagine again from the regulatory perspective that there is going to be some pressure to keep to the target that is agreed but I expect here will be room for changes.

John: Fantastic makes sense. Thank you Marcos. We have reached the end of our 45 minutes so just want to say thank you very much to our presenters for sharing that with us and thank you to all of you for joining the webinar as well today.

Marcos: Thank you.