Pensions Weekly Update – 26 April 2023

Authors:

Here is our weekly summary of key legal and regulatory developments relevant to occupational pension schemes that you might have missed, with links for further information.

The Pensions Regulator (TPR) has published its corporate plan 2023-24, which is packed full of information. TPR says that its focus for 2023 through to 2024 will be preparing for the launch of the defined benefit (DB) funding code in April 2024 (note that this is later than the previous target date of October 2023), improving how it monitors and addresses risks in the marketplace, increasing supervision and enforcement, tackling pension scammers via its pensions scams strategy and the Pension Scams Action Group, and refining its automatic enrolment operating model to be more targeted and efficient.

TPR reports that its DB funding code will make clear that schemes must reduce their reliance on their sponsoring employer as they become increasingly mature and manage risk effectively. However, TPR reassures that the code will provide trustees with flexibility around funding to suit their individual circumstances.

TPR notes that its ability to monitor and assess market risks relies upon good data. This may mean that TPR seeks to increase the amount of information it gathers on a range of asset allocations, including liability driven investments (LDI). However, TPR has said that it is committed to minimising burdens and will assess costs versus burden as part of any request it makes of schemes for more data.

Trustee boards will come under increasing scrutiny during the course of this year. Trustee boards that lack the requisite knowledge and understanding (and/or that underperform) will be identified and TPR will take appropriate enforcement action. TPR says that it will also be reviewing options generally and will look at whether every trustee board should include a professional trustee and/or whether trustees should be accredited or authorised. It will undertake this work in conjunction with the Department for Work and Pensions (DWP).

Looking further ahead, TPR plans on ensuring that a value for money framework is in place for pension savers, building on the work already undertaken with the DWP and the Financial Conduct Authority. TPR notes that its work during 2023 will also include issuing the general code of practice and implementing regulatory initiatives on equality, diversity and inclusion, and climate change and stewardship.

On the topic of the general code, we are still waiting for TPR’s general code of practice to be laid before parliament. TPR says that publishing the general code will be a key milestone in quarter 1 of its corporate year, which is 1 April 2023 to 30 June 2023.
TPR has published new guidance on the steps that trustees should take if using leveraged LDI. The guidance follows a paper published by the Bank of England’s Financial Policy Committee (FPC) on 29 March 2023, which referred to a FPC recommendation that TPR “take action as soon as possible to mitigate financial stability risks by specifying the minimum levels of resilience for the LDI funds and LDI mandates in which pension scheme trustees may invest.” TPR’s new guidance covers a broad range of actions that TPR considers that trustees should take, stressing the importance of having appropriate governance and controls in place to reduce risk and ensuring that action can be taken quickly and effectively in response to events and changes in market conditions. Note also that the guidance sets out TPR’s expectations that trustees ensure that the LDI arrangements they invest in maintain an appropriate “buffer” (including guidance on the structure and size of the buffer).