The final version of TPR’s guidance for trustees on the PA 2004 scheme-specific funding regime has been published. The Code of Practice is in force from 15 February, by virtue of The Pensions Act 2004 (Funding Defined Benefits) Appointed Day Order 2006 (SI 2006/337). (PA 04 s.91(9) requires a commencement order to formally bring each TPR Code of Practice into force.) The original consultation document [PDF], issued last March, was only two-thirds as long as the final Code.

In their October 2005 supplementary condoc [PDF] TPR had asked whether respondents agreed that building a filter using distinct triggers for funding targets and recovery plans was the best way for the regulator to identify funding risks, and whether the proposed triggers (eg 60 - 70% of PPF liabilities and 10 years) were set correctly. These questions provoked a considerable critical response, some suggesting any such published triggers would come to be seen as 'the new MFR': ie a target which many schemes would aim to just better, in order to avoid coming to TPR's attention under its risk-based approach.

Specific trigger points, though central to TPR's thinking as we noted in our earlier report, are not mentioned in the final Code. However, the Regulator has confirmed to Aries that a separate "Final Document" will appear in the coming months, on the approach TPR will take in regulating the funding of defined benefit schemes. This will be based on the October condoc and some seventy responses from the industry. It remains to be seen whether TPR will recognise the possible adverse effect that published trigger points might have on trustee behaviour.

Another issue on which much debate has ensued is what TPR understands by "prudence", given that it is left undefined in the legislation. The Code provides a wealth of sound guidance, written in accessible language. It warns that prudence requires that economic and actuarial assumptions are considered together, as a whole. Trustees must also consider whether, and if so to what extent, account should be taken of a margin for adverse deviation. Trustees are reassured they are not obliged to fund at the level needed to buy out accrued liabilities with an insurance company.

Attention is drawn to a limitation of the conventional actuarial valuation ie that only a single answer emerges, which is the fund required if all assumptions are precisely borne out by experience. Since in practice most assumptions can be regarded as one point in a range of possibilities, the Code advises consideration of stochastic modelling techniques, as seen in some 'asset-liability' models. These provide a range of outcomes with probabilities attached, allowing a view to be formed of the likelihood of any particular level of technical provisions being sufficient to meet benefits as they fall due.