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.