DB Funding Rules – DWP Consultation: The DWP has launched a consultation on draft regulations that, when brought into force, will give the legislative backing to enable TPR to deliver its new DB funding code. The requirements of the new code have been anticipated for a few years now. Schemes and sponsors will need to have a plan in place so that, when a scheme reaches ‘significant maturity’, it follows a ‘low-dependency’ strategy for investments and funding. This may prove to be challenging for schemes whose sponsors are weak. Stronger companies may also find that they will need to pay down deficits quicker in the future.
Schemes will need to prepare a ‘statement of strategy’ on their plan to reach ‘low-dependency’, which must be signed off by the Chair of Trustees and submitted to TPR. As well as providing details of the funding and investment strategy, the statement must provide an assessment by the Trustees of whether it is being successfully implemented and any remedial action that they intend to take. The Trustees must also set out key risks and mitigations for implementation.
Full details of the new regime, including such matters as ‘fast-track’ and ‘bespoke’ funding routes, will not be known until TPR consults on the new Code, which will be sometime after the DWP finalises the regulations. The consultation can be found here: DWP Funding Regulations Consultation and closes on 17th October.
Stronger Nudge – Schemes voice concerns: Trustees will be aware that, although the ‘Stronger Nudge’ requirements were largely designed for DC schemes, they also apply to AVCs linked to DB schemes. A number of pension schemes have written to Parliament’s Work and Pensions Committee with concerns that Pension Wise is not set up to provide guidance on AVC options within a DB arrangement. It will be interesting to see whether there are any moves to ‘amend’ the stronger nudge requirements as a result of this approach.
PPF Reports Strong Financial Position: In its annual report and accounts for the year to 31st March 2022, the PPF recorded £39billion in invested assets (up £1billion) and consolidated reserves of £11.7billion (up £2.7billion). It now has £11.7billion in excess of what it estimates it needs to pay current members and their dependants for the remainder of their lives. PPF assess their funding ratio to be 137% (up 10.6% over the year). The PPF has been carrying out a review of their funding strategy, which they note is not in its final stages and has stated that if the funding position remains robust over the next 3-year period, they expect to be able to reduce the amount of levy they collect.
DB Funding – funding on accounting basis: After improvements seen in the accounting measure of DB liabilities at the end of June, the picture changed at the end of July. Falls in corporate bond yields and the rise in market expectations of future inflation will have increased the value placed on liabilities, highlighting how quickly positions can change.
TPR Annual Funding Statistics: TPR has issued an update to its annual funding statistics, which is based on schemes with valuation dates between 22nd September 2019 and 21st September 2020. The analysis shows that the majority of schemes have less than 40% of assets invested in return seeking asset classes. Only around 17% of schemes have more than 60% allocated to return seeking assets. Almost 1/3 of schemes reported a surplus. Of those schemes in deficit, the average length of Recovery Plan was 5.9 years. The analysis can be found here: TPR Scheme Funding Analysis 2022
