HPW’s Investment Market Review
Please find here HPW’s Investment Market Review of the fourth quarter of 2024.
For more information please contact Investment@hughespricewalker.co.uk
Kind regards
HPW investment
Jean Slater falls victim to a secondary scam: a warning for all
In a gripping new episode of EastEnders, Jean Slater becomes entangled in a secondary scam, shedding light on an underreported but increasingly dangerous form of financial fraud. Secondary scams are perpetrated by fake recovery companies that target victims of an initial scam, promising to help recover lost funds, only to defraud them further.
While primary scams often involve schemes that lure people into risky or fake investments, secondary scams exploit the desperation of victims who have already been deceived. These scams can be even more devastating, as they prey on trust and amplify the financial and emotional toll.
To combat such dangers, The Pension Scams Action Group has created a helpful resource: the “Steps to stay scam safe” checklist. This leaflet provides practical advice to help you identify and avoid pension-related scams. Key tips include verifying the credentials of anyone who contacts you, being wary of unsolicited offers and never feeling pressured into making quick decisions about your pension.
For more information, access the checklist here.
The EastEnders storyline serves as a powerful reminder to remain vigilant.
Lessons from the TPO Determination
Introduction
The Pensions Ombudsman’s (TPO) recent determination in the case of Ecroignard Trustees Limited (ETL) and former director Ankur Vijaykumar Shroff highlights critical failings in pension fund management. This case, which involved the Genwick Retirement Benefit Scheme and the Uniway Systems Retirement Benefits Scheme, underscores the devastating consequences of poor governance, conflicts of interest and risky investment practices. Ecroignard Trustees were found to have breached their duties by investing members’ funds in high-risk, unregulated, illiquid investments/assets that were inappropriate and did not comply with the regulations governing pension scheme investments, ultimately leading to significant financial loss for scheme members.
This determination serves as a cautionary tale for trustees and firms managing pension schemes. It underscores the importance of robust governance, ethical investment practices and compliance with regulatory standards to protect members’ funds.
Lessons learned from the case
The TPO ruling brings several critical lessons to light. We have summarised our top three below:
Governance failures: Trustees failed to manage conflicts of interest and did not exercise due diligence in selecting appropriate investments.
Investment risks: High-risk, illiquid investments, coupled with a lack of transparency, led to member losses.
Neglect of member interests: Decisions prioritised external parties over members’ financial security.
These failures emphasise the need for trustees and fund managers to adopt a disciplined and transparent investment approach, prioritising member interests above all else.
Our firm’s robust investment approach
At HPW, we adhere to the highest standards of governance, investment diligence and ethical practice to safeguard pension scheme members’ interests. Here’s how we ensure success and compliance:
Governance and internal controls
Rigorous oversight: We employ robust internal controls, regular audits and a clear separation of duties to eliminate conflicts of interest.
Accountability: Our decision-making process is transparent, ensuring trustees are fully informed and empowered to act in members' best interests.
Diversified investment strategy
Balanced risk and return: We adopt a diversified approach, spreading investments across asset classes to minimise risk.
Focus on stability: Unlike the schemes in the TPO determination, we avoid speculative investments and prioritise long-term stability and meeting members’ objectives.
We assess the risks of schemes and mitigate or remove them as much as possible in the investment strategies.
For a given level of risk, we try to achieve the best expected level of return while considering environmental, social and governance issues.
Transparency and member interests
Clear communication: Members are kept informed about investment strategies, risks, and returns through regular updates. Regular updates are shared with our clients, including a detailed quarterly market review that features a macroeconomic analysis, a comprehensive market overview and key investment insights.
Member-centric decisions: Every investment decision is made with the members’ financial security as the top priority.
Compliance and ethical standards
Regulatory adherence: Our practices align with the Pensions Regulator’s Codes of Practice and the Data Protection Act 2018.
Ethical investment: We conduct thorough due diligence to ensure every investment meets stringent ethical standards.
Red flags and advice for trustees
To avoid the pitfalls highlighted by the TPO case, trustees should remain vigilant. Here are some key steps:
Conduct due diligence: Always assess the risks, governance, and transparency of proposed investments.
Seek expert advice: Consult regulated advisors with a proven track record.
Diversify portfolios: Avoid over-reliance on single or high-risk investments.
Beware of unclear structures: Steer clear of overly complex or offshore arrangements without clear accountability.
The importance of codes of practice
Codes of practice provide a framework for trustees to manage pension schemes responsibly. By integrating these into our governance framework, we ensure compliance and build trust. For example, HPW regularly reviews its practices against these codes to stay ahead of regulatory changes and best practices.
Conclusion
The TPO determination serves as a stark reminder of the responsibilities trustees bear in safeguarding members’ funds. At HPW, we are committed to ethical investment practices that prioritise members’ long-term financial security while adhering to the highest regulatory and ethical standards.
If you are seeking a trusted partner for pension scheme management, contact us to learn more about our approach to robust and ethical fund stewardship.
TPR updated covenant guidance for Trustees of DB schemes
The Pensions Regulator (TPR) has released revised guidance on employer covenant assessments for trustees of defined benefit (DB) pension schemes, in line with the new DB funding code.
This updated guidance provides clarity on TPR's expectations for evaluating the employer covenant, aiming to standardise practices across schemes while promoting best practices. It introduces several key elements, such as assessing cash flow, affordability, maximum affordable contributions, covenant longevity and contingent assets.
TPR’s Executive Director of Market Oversight, Neil Bull, said:
“Today’s publication is the last piece of the jigsaw to help schemes carry out valuations under the new DB funding code. For the first time, employer covenant is defined in regulation.”
Trustees are encouraged to consider proportionality when assessing their covenant, taking into account the specifics of each scheme, including its funding situation and recent changes. The guidance includes practical examples and emphasises areas that require careful trustee judgment, particularly around contingent assets and ensuring the employer's ability to provide support when needed.
Trustees are expected to regularly review their covenant assessments to ensure they remain relevant and proportionate, particularly in light of any shifts in the scheme's funding position.
The guidance is organised into the following nine sections:
Introduction
Identifying employers
Assessing cash flow
Prospects
Determining the reliability period and covenant longevity period
Contingent assets
Recovery plans
Determining the covenant inputs required to assess supportable risk
Monitoring
PASA releases new guidance on data scoring
The Pensions Administration Standards Association (PASA) has issued new guidance to help trustees and providers improve the quality of pension scheme data through targeted testing and scoring.
Kristy Cotton, Chair of the PASA Data Working Group, emphasised the importance of annual, scheme-specific data testing to accurately reflect data quality, address risks and focus on resolving genuine issues. Low data scores, while not ideal, offer an honest assessment and opportunities for improvement. Effective data scoring enhances efficiency, automation and the member experience.
Key takeaways from the guidance include:
Conducting relevant and targeted data testing to reflect true data quality
Building consistency across the industry to enable data comparison and better data quality understanding
Ensuring trustees can evidence data quality improvements and maintain transparency with rectification plans
Avoiding delays in data testing, even during ongoing rectification projects, to uphold accountability
Fiona Frobisher from The Pensions Regulator welcomed the guidance and encouraged schemes to adopt these good practices to meet minimum standards.
The full PASA Guidance is available online.
New EastEnders storyline highlights the devastating impact of pension scams
It would be reassuring if the recent EastEnders storyline about a pension scam were just a fictional plotline but unfortunately, scams like this happen in real life every day. Did you know that in 2023 there were 559 reports of pension fraud in total and £17,750,635 lost with an average loss of £46,959 per person? And have you considered how easily your hard-earned savings could be at risk?
In the latest gripping drama on BBC’s EastEnders, popular character Jean Slater, aged 61, becomes the target of a cruel pension scam. Persuaded to transfer her pension into a high-return investment after participating in a “free pension review” Jean is eventually scammed and she now faces the heart-wrenching consequences of losing her savings.
This storyline has caught the attention of The Pensions Regulator (TPR), who, alongside other organisations, collaborated with the EastEnders writers to bring awareness to the real-world dangers of pension fraud. The partnership aims to educate viewers about the manipulative tactics that fraudsters use to exploit the vulnerable.
How members can protect themselves and their savings
Here are some crucial steps that pension scheme members can use to protect themselves from pension scams:
Stop and think: If you receive an unexpected call, email or text about your pension, don’t rush into a decision. Reject the offer and take time to consider your options.
Check the source: Always verify who you are dealing with by checking the FCA’s register of authorised firms and advisers.
Look for red flags: Be cautious of offers of “guaranteed high returns” or “free pension reviews” that seem too good to be true.
Report suspicious activity: If you suspect you’ve been targeted by a scam, report it immediately to Action Fraud online or by calling 0300 123 2040. In Scotland, report to Police by calling 101.
What can you do?
As a viewer of EastEnders or a member of the public, you have a vital role to play in protecting yourself and others from pension scams. Take the time to stay informed, report suspicious activity and encourage your friends and family to do the same. The more proactive we all are in spotting and reporting pension fraud, the safer we will be in securing our financial futures.
New DB funding code in force today
The Pensions Regulator’s (TPR) new funding code for defined benefit (DB) schemes, which provides guidance and sets expectations for meeting funding and investment strategy (FIS) requirements, takes effect today.
This code applies to DB schemes with actuarial valuations from 22 September 2024 onward.
Neil Bull, TPR's Executive Director of Market Oversight, emphasised that the code aims to align trustees with appropriate long-term objectives for their schemes, ensuring clarity and enhanced regulatory oversight to secure members' benefits. Minister for Pensions, Emma Reynolds, highlighted the significance of DB pensions for the retirement of millions, noting the code's role in setting higher standards while maintaining flexibility to protect members' entitlements.
The related DB regulations were introduced in April 2024 and similarly apply to valuations from late September. TPR plans to provide further support for implementing the code, including a webinar in December and additional covenant guidance later this year.
Additionally, TPR is developing a digital service to streamline the submission of funding and strategy documents, set to be available in spring 2025, with pilot testing already underway. Key elements of the code encourage sound long-term planning, risk management and guidance on funding and recovery plans based on sponsor capacity.
TPR’s core objectives include protecting members’ benefits, reducing reliance on the Pension Protection Fund, promoting strong pension administration, enforcing compliance and supporting employers' sustainable growth.
The Autumn budget 2024
The Chancellor delivered the Autumn Budget on 30 October 2024. We set out below the key issues relating to pensions.
Tax on pension death benefits
From 6 April 2027, most death benefits from registered pension plans will be part of the deceased member’s estate for inheritance tax purposes. This includes lump sums, which are currently not included as they are given to beneficiaries chosen by the trustees. The main exception will be pensions paid to dependants, for example a spouse or child. Pension schemes will be responsible for reporting and paying any inheritance tax owed. This plan is being reviewed, with a consultation open until 22 January 2025.
National Insurance contributions
From 6 April 2025, the rate of employer National Insurance will increase from 13.8% to 15%. In addition, employers will need to pay National Insurance on annual earnings over £5,000 (previously £9,100). There is no extension to include employer pension contributions.
Scheme administrators’ residency
From 6 April 2026, administrators of registered pension schemes (for tax purposes) will be required to be residents of the UK. In most cases, the scheme administrator for these purposes is the trustee board.
Overseas pension transfers
Transfers to recognised overseas pension schemes in the European Economic Area or Gibraltar will no longer be excluded from the overseas transfer charge.
Mineworkers Pension Scheme
The investment reserve fund of the Mineworkers Pension scheme will be given to the Scheme’s trustees to provide additional pension benefits to its members. This will give a boost of 32% to the annual pensions of 112,000 former mineworkers. The fund, now worth £1.5 billion, was due to be returned to the government in 2029.
If you would like to discuss this, please get in touch with your usual HPW contact or contact us.
PASA Launches New ‘Dashboards Toolkit’
Today PASA has published the first content in its new 'Dashboards Toolkit,' designed to help trustees and administrators connect AVCs to pensions dashboards.
The initial toolkit includes:
A questionnaire for trustees to issue to their AVC providers in advance of connecting their scheme AVCs to dashboards
A checklist and suggested list of activities for administrators to connect to and maintain AVC data
A list of AVC providers and their connection methods
The new PASA Dashboards Toolkit, can be found here.
HPW’s Investment Market Review
Please find here HPW’s Investment Market Review of the third quarter of 2024.
For more information please contact Investment@hughespricewalker.co.uk
Kind regards
HPW investment
Driving excellence in pension administration: TPR's initiative and HPW's commitment to quality
The Pensions Regulator (TPR) recently announced that it will be expanding its engagement with administrators to help drive better saver outcomes. See here for details.
TPR will be focusing on seeking input from a selection of the largest administrators who cover the highest number of memberships to maximise its reach.
Last year, TPR launched a pilot initiative aimed at addressing risks related to data management and trustee engagement, which yielded positive results and led to actionable improvements. Moving forward, TPR plans to collaborate with 10 to 15 key administrators to foster a more secure and innovative market. This expanded effort will concentrate on four key areas: financial sustainability, risk and change management, cyber resilience and technological innovation.
HPW supports this drive to improve member experiences. We are an independent provider with no outside shareholders, committed to ensuring smaller schemes can access administration services of a high standard. In this article we explain how we do this.
Our approach to pension scheme administration
A dedicated, experienced team
At HPW, we pride ourselves on having a highly experienced team of pension administrators. Our people come to us with strong industry experience and thrive in the ever-evolving world of pensions. We foster a collaborative environment, working together as a close-knit team to support each other. We also encourage professional growth, with most of our team being members of the PMI (Pensions Management Institute) thanks to our support in their exam progression.
Personalised service
We specialise in working with small to medium sized schemes, which allows us to build close relationships with both members and trustees. Every scheme is assigned a dedicated point of contact with a direct phone number and email, ensuring quick, personal responses when needed. For routine requests, we aim for a 5- to 10-day turnaround, but for urgent matters, like handling the pension of a deceased member, we reach out within 24 hours to offer guidance and support during a difficult time. We are always committed to keeping members informed and updated on the progress of their requests.
We have more stringent service standards than most. We aim to achieve at least 95% of all tasks within the timescales.
Our performance against these standards is shown below.
As an indicator of the robustness and reliance of our administration infrastructure, when the COVID-19 pandemic hit the UK, our March 2020 achievement against targets was 97%.
Clear, accessible communication
Clarity is at the heart of everything we do. Our goal is to make pension information as easy to understand as possible and we encourage members to reach out if they need anything explained. Whether it's retirement options or specific documentation requests, we're here to help every step of the way.
The table below highlights feedback from our clients gathered in our most recent administration survey. We value feedback and continuously look for ways to improve our communications based on member input.
Administration surveys
All communications were easy to understand and all points were explained well.
HPW communicated with us at the right time and often enough.
Any enquiries were dealt with promptly.
The responses to any enquiries were provided to a high standard.
If asked, I would recommend HPW's administration services to other trustees.
Valuable client feedback
Our commitment to personalised service doesn't go unnoticed. Here’s what some of our members have said:
• “My face-to-face meeting was extremely helpful; I’ve received excellent service!”
• “The process was easy, with prompt action and payment.”
• “Communications were handled professionally throughout.”
• “All communications I had with HPW were outstanding”
• “Can’t fault the process 10/10”
• “The process was very easy, efficient and professional, all as I expected from HPW”
Maintaining high-quality data
Good data is the backbone of effective scheme management. When we take on a new scheme, we conduct a thorough health check of all received documentation and data, reporting our findings to the trustees. We also run regular checks and tracing exercises to ensure member data is as accurate as possible, ensuring smooth administration and informed decision-making for trustees.
Proven systems and strong security
HPW is proud to hold ISO 9001 accreditation, which reflects our high standards in processes and quality control. We are continually improving, using both internal and external feedback to enhance how we work. Protecting our clients from fraud is a top priority, and we’ve committed to The Pledge to Combat Scams, aligning with our rigorous fraud prevention measures.
Additionally, all staff undergo Cyber Essentials training, ensuring robust data protection and GDPR compliance. Our systems are secured with multi-factor authentication, firewalls, and anti-virus protection to safeguard member information. As we continue to innovate, we are working towards Pension Dashboard connectivity and are excited to launch our member portal in the near future.
Please contact us if you have any questions or you want to know more about our services.
Preparing for Pensions Dashboards: Key Actions for Trustees and Scheme Managers
As automatic enrolment brings more people into pension saving, the need for savers to access a comprehensive view of their retirement pots becomes increasingly important. To support this vision, pension schemes must be ready to meet their obligations regarding pensions dashboards.
Yesterday, in an interesting article called “Act now on pensions dashboards so we don’t have to” The Pensions Regulator outlined clear expectations for trustees and scheme managers on compliance, emphasising the importance of accurate data and timely preparation. As highlighted in the article, by taking the necessary steps now, schemes can avoid regulatory enforcement and help savers secure their financial future.
Here are some key actions for trustees and scheme managers:
Read the guidance: Understand and comply with both The Pensions Regulator (TPR) and Department for Work and Pensions (DWP) guidelines.
Plan connection: Ensure timely and orderly connection to pensions dashboards, reducing risks of non-compliance and reputational damage.
Manage resources: Implement robust controls and contractual agreements with service providers.
Improve data quality: Continuously review, improve, and maintain accurate member data.
Manage risk: Identify, evaluate, and mitigate risks through effective governance and controls.
Maintain records: Keep clear records of decisions, advice, and data-related actions.
Report breaches: Promptly report and address any breaches to prevent regulatory enforcement.
Monitor progress: Work closely with third parties to ensure compliance and meet dashboard deadlines.
If you have any questions or need assistance with implementing these actions, please feel free to contact us for support.
HPW
DB Funding Code of Practice laid in Parliament
The Pensions Regulator’s ("the Regulator's") new Code of Practice on Funding Defined Benefits ("the Code") was finally laid before Parliament on 29 July 2024. Trustees and scheme sponsors now have sufficient clarity on the Regulator’s guidance and expectations for valuations with effective dates on or after 22 September 2024 to allow valuation planning to commence.
The new Code reflects changes made to the final version of the funding and investment strategy regulations that came into force on 6 April 2024. The Regulator has highlighted greater flexibility in the final Code, including:
Clarifying that trustees retain flexibility to set scheme-specific investment strategies;
Allowing trustees more flexibility over how to test the high resilience of their low dependency investment allocation;
Greater clarity on how to assess covenant reliability and longevity; and
Allowing trustees to recognise in their statement of strategy any scheme plans to remain an open scheme.
There are also a number of changes to some of the relevant definitions and key parameters. “Smaller schemes”, for which some limited easements apply to the detailed requirements, are now defined as schemes with 200 members or fewer, excluding certain members such as those with DC benefits only or fully insured annuities. In addition, the key definition of “significant maturity” has been reduced from 12 to 10 years (8 years for cash balance schemes).
The new Code will come into force formally during the autumn, once it has been before Parliament for 40 days. Further details are due from the Regulator in the coming months including the filters it will use when assessing valuations. Other publications still to come include a consultation on updated covenant guidance and its final statement of strategy to be accompanied by its response to its March 2024 consultation.
Virgin Media Limited v. NTL Pension Trustees II Limited
The recent decision from the Court of Appeal upheld that amendments to a contracted-out pension scheme's rules that affect contracted-out rights (technically known as Section 9(2B) rights) are void if made without the required actuarial confirmation as mandated by Section 37 of the Pension Schemes Act 1993 and Regulation 42 of the Occupational Pension Schemes (Contracting-out) Regulations 1996.
This ruling impacts historical amendments made between 1997 and 2016, potentially increasing scheme liabilities if such amendments are found to be void due to missing actuarial confirmation.
Trustees and Employers may wish to review past amendments from 1997 to 2016 to ensure they comply with the requirement for actuarial confirmation. This involves checking if the necessary confirmation was obtained and documented at the time of the amendment. If there is doubt about whether the confirmation was obtained, Trustees may need to search through historical records, including emails and other correspondence, for evidence.
Trustees and employers should stay informed about any developments and be prepared to adjust their actions based on the final legal outcome. Note that it is possible that the DWP will intervene to bring in legislation to permit retrospective actuarial confirmations.
HPW’s Investment Market Review
Please find here HPW’s Investment Market Review of the second quarter of 2024.
For more information please contact Investment@hughespricewalker.co.uk
Kind regards
HPW investment
International Pride Day
Today, we proudly celebrate International Pride Day!
At HPW, we stand with the LGBTQ+ community, honouring diversity and inclusion.
To our LGBTQ+ colleagues, clients and allies: We see you, support you, and celebrate you.
Happy International Pride Day!
#PrideDay #LoveIsLove #LGBTQ #Inclusion #Diversity #Pride2024
News: the General Code of Practice comes into force today
The General Code of Practice (“the Code”) came into force today, 28 March 2024. It sets out the Pensions Regulator’s (“the Regulator’s”) expectations of the “conduct and practice governing bodies should meet to comply with their duties in pensions legislation”.
The Code has combined 10 existing codes of practice into one set, as shown in the following table. The existing codes of practice which now fall under the Code have been erased in their entirety.
The Code is split into 51 smaller modules and sets out, among other things, what issues should be considered by trustees of pension schemes when completing their Effective System of Governance (ESOG). In addition to having an ESOG in place, schemes with 100 members or more must carry out and document their Own Risk Assessment (ORA) as part of the ESOG.
Further information on the ESOG and ORA, and how the Code applies to different schemes, are in our previous article.
Summary of Recommended Actions
The code explains that the Regulator will permit some flexibility as it acknowledges that each scheme is different, and an element of proportionality may be used when assessing the governance needs of each scheme. If you have any questions on how to identify the areas which need to be improved upon to ensure compliance with the Code, please contact us to discuss this in more detail.
TPR D&I survey: lack of diversity in pension boards
The Pensions Regulator (TPR) conducted its first trustee diversity and inclusion survey, revealing that most pension trustees in the UK are white men over 45.
Results of the survey published today, completed by 2,197 trustees, emphasised the importance of diverse and inclusive boards for effective decision-making and governance. While most trustees recognise this importance, only a minority of schemes have taken action to improve diversity.
While the survey highlights the lack of trustee diversity in terms of protected or visible characteristics such as ethnicity, most trustee boards were seen as diverse in terms of skills (82%), life experience (74%), professional background (73%), cognitive diversity (73%) and education (61%).
The survey found that professional and corporate trustees were more likely to have taken action in this regard.
Additionally, the role of the chair was identified as crucial in driving diversity and inclusion efforts within trustee boards.
The survey results underline the need for ongoing efforts to enhance diversity and inclusivity within pension scheme governance.
The new DB funding code
Introduction
The Pensions Regulator (“the Regulator”) is expected to introduce the new Defined Benefit (DB) funding code (“the Code”) in summer. The Code will apply to valuations with an effective date on or after 22 September 2024. The draft code can be found here: Draft DB Funding Code of Practice.
Long term planning
A significant aspect addressed in the Code is long term planning for schemes. Trustees are required to establish a plan for the long term funding of their scheme, which includes:
Setting a long term objective detailing how benefits are to be provided and the funding level to be attained by the ‘relevant date’; and
Creating a journey plan outlining the path to achieving the long term objective from the current funding position.
The target funding level must be at least 100% on a ‘low dependency’ basis, i.e. a basis under which no further employer contributions would be required if the scheme was fully funded. The trustees will determine the ‘relevant date’ which must be no later than the scheme year in which significant maturity is reached, as estimated by the scheme actuary.
The journey plan should consider the employer covenant and scheme maturity whilst ensuring adequate liquidity. A higher level of risk will be acceptable if the employer covenant is strong.
After the ‘relevant date’, trustees should invest in line with a ‘low dependency’ asset allocation. Cashflows should be broadly matched between assets and liabilities, and the funding level should be resilient to short term adverse changes in the market. The asset allocation must be set using prudent assumptions and include sufficient liquidity to ensure no further contributions are expected from the employer once the scheme is fully funded. Scheme liabilities must be calculated on a basis consistent with the ‘low dependency’ strategy.
Employer covenant
Another area of focus is on employer covenant, i.e. the ability and willingness of the employer to fund the pension scheme. Previously, covenant considerations have been backwards looking, focusing on past performance. The Code encourages trustees to engage in more detailed, reliable and forward-looking covenant assessments, as it is the future cashflows of the company that actually determine its ability to contribute to the pension scheme when required.
The Code emphasises that the following areas should be considered:
Covenant visibility: the period for which reliable forecasts are available;
Covenant reliability: the period for which the trustees have reasonable certainty over the employer’s level of available cash; and
Covenant longevity: the maximum period over which the trustees can reasonable assume the employer will be able to support the scheme.
The length of these three periods should help to inform decisions around the level of risk to take and the length of the journey plan. The Code reaffirms the overriding principle that any funding deficit should be recovered as quickly as the employer can reasonable afford.
Statement of strategy
Trustees must prepare a statement of strategy outlining the decisions taken, with the required level of detail depending on the amount of risk being taken. Some parts, such as the general funding and investment strategy, must be agreed with the employer. Other parts, such as supplementary details, must be set after consulting the employer, though the employer’s agreement is not required.
Trustees will not be required to invest in line with the ‘low dependency’ asset allocation immediately. Immature schemes with a strong funding position and strong employer covenant may justify taking more risk in growth-seeking assets. However, the Regulator expects trustees to transition towards a strategy consistent with low dependency on the employer after the ‘relevant date’, though this doesn’t mean completely excluding growth assets.
The Regulator is expected to consult on the statement of strategy in March 2024.
Regulatory approach
In addition to the Code, the Regulator will update its regulatory approach and introduce a new twin-track method: ‘fast track’ and ‘bespoke’.
Schemes qualifying for ‘fast track’ will see less scrutiny on their submission and the Regulator is unlikely to question the trustees. Qualification is generally based on the funding basis and recovery plan length relative to the scheme duration.
If a scheme does not qualify for ‘fast track’, it will need to take the ‘bespoke’ approach. Trustees can also choose to adopt the ‘bespoke’ approach even if their scheme qualifies for ‘fast track’ if they prefer greater flexibility or want to select an approach that suits the specifics of their scheme. This approach requires a more detailed valuation submission and could face greater scrutiny from the Regulator.
Further details of the fast track approach, including the parameters a scheme needs to meet in order to use this approach, are given in the appendix.
Further information
If you would like any more information or wish to discuss the implications for your scheme, please contact us.
Appendix – fast track approach
The fast track parameters are outlined here: Fast track parameters. Some key information is given below. The information is based on the consultation document and so is subject to change.
Technical provisions funding level
A scheme’s technical provisions when expressed as a percentage of a scheme’s low dependency liabilities must hit a certain minimum level. This minimum percentage varies by the duration of the scheme (calculated on the low dependency basis), for example:
12 years and below: 100%
20 years: 85%
30 years: 72%
Funding and investment stress test
Schemes need to demonstrate that, if fully funded, the scheme’s funding level wouldn’t fall by more than a certain percentage. The maximum percentage tolerated varies by the duration of the scheme (calculated on the low dependency basis), for example:
12 years and below: 1.9%
20 years: 13.1%
30 years: 18.7%
The change in the funding level will be calculated as 1 – stressed funding level / unstressed funding level where:
Unstressed funding level = the low dependency funding level
Stressed funding level = the low dependency funding level with certain stress factors applied to both the assets and liabilities, which have been prescribed
If the results of the calculation show a lower fall in the funding level than the tolerated percentage, the scheme passed the funding and investment stress test.
Recovery period
The recovery period, if any, must be no longer than 6 years for a valuation that is being completed before a scheme’s ‘relevant date’, and 3 years for a valuation that is being completed after the ‘relevant date’. The annual increase in contributions must be no more than the CPI inflation assumption used under the technical provisions basis, and there must be no allowance for asset outperformance.
Assumptions
The discount rate and inflation assumptions must use a yield curve for schemes with more than 100 members. For smaller schemes, i.e. those with 100 or fewer members, a single discount rate and single inflation rate may be used, as long as the Bank of England yield is used at a duration nearest to the duration of the scheme. Requirements for specific assumptions are as follows:
The addition to the gilt yield curve, or single gilt yield, must be no more than 0.5%
There must be no adjustment to the RPI assumption
The CPI assumption must be no lower than 0.8% below RPI before 2030 and no lower than RPI from 2030
The mortality assumption should use a recent CMI core or extended model
The marital assumption should be at least as strong as PPF Section 179 guidance
Options can only be allowed for to the extent that they increase the liabilities in the low dependency funding basis
Changes for the Pensions Regulator
In response to new regulations, the Pensions Regulator (TPR) is making changes to guarantee ongoing benefits for savers and reinforce its oversight.
Starting in April, three new regulatory functions will be established:
1- Regulatory Compliance (ensuring compliance)
2- Market Oversight (improving the market) and
3- Strategy, Policy, and Analysis (evolving regulations and supporting innovation)
Chair of TPR, Sarah Smart, said: “The market should expect us to engage with it differently from now on. Our new structure means we will be swifter to address compliance failures and market-wide risks while being more dynamic in our industry engagement and bringing innovation to the fore.”
These changes will be supported by essential functions like Operations, Digital, Data and Technology, and People.
Chief Executive of TPR, Nausicaa Delfas, said: “We have to make sure that workplace pensions work for savers. Our organisational changes are about bringing our talented and capable colleagues together to protect, enhance and innovate in savers’ interests.”
The changes reflect TPR's dedication to addressing compliance issues, managing market-wide risks, and fostering innovation.
Talk to us if you want to discuss any of these changes.