New funding and investment regulations for defined benefit pension schemes: What has changed?

On 29 January 2024, the Department for Work and Pensions (“DWP”) responded to its 2022 consultation on the proposed new Funding and Investment Regulations and, subject to Parliamentary approval, the legislation will take effect for actuarial valuations with effective dates from 22 September 2024.

Key changes to the draft Regulations

The proposed legislation, accessible via the following link (Government response: The draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023 - GOV.UK (www.gov.uk)) is largely unchanged from the 2022 draft and maintains the 'low dependency' funding requirement for Defined Benefit (DB) schemes as they mature.

However, the DWP has made a number of adjustments to the Regulations.

One of the key changes is to align the Regulations with the Pensions Regulator’s (“TPR”) General Code, which was presented to Parliament earlier this year. This alignment aims to eliminate potential conflicts between the Government's approach and that of TPR, providing reassurance to stakeholders.

The DWP has also introduced several important amendments and clarifications. These changes are intended to ensure that the Regulations do not restrict actual investments and to emphasise consideration of the sponsoring employer's sustainability in trustee investment decisions.

For open DB schemes, the new Regulations explicitly allow them to take into account the impact of new entrants and future accruals in their journey planning exercises. This flexibility is a welcome addition, affording open schemes more flexibility in their long-term planning.

Finally, the DWP's response indicates that TPR has the authority to request "less detailed information in some cases" based on scheme-specific circumstances. However, it is worth noting that the draft legislation does not confirm specific Fast Track parameters, leaving certain details to be clarified by the upcoming TPR funding code.

Looking Ahead

While the updates have addressed industry concerns, particularly regarding inconsistencies with the General Code, the ultimate impact of these changes remain uncertain until the TPR publishes its new funding code. Our expert pensions team can provide training and support on this area. Please get in touch for a chat.