Pensions Weekly Update – 31 July 2024

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 laid its defined benefit (DB) funding code before Parliament. The new code takes account of the changes made to the final version of the funding and investment strategy regulations, which came into force on 6 April 2024, and are effective for schemes with valuation dates from 22 September 2024 onwards. The code sets out TPR’s guidance and expectations on how to comply with the funding and investment strategy regulations. More flexibility has been introduced into the code, including in its application for open schemes. One of the key changes made since the consultation stage relates to a scheme’s funding and investment strategy. TPR clarifies that the low dependency investment allocation is an objective for the funding and investment strategy rather than a principle that must be followed in actual investment decisions. There is a focus on proportionality in the code, particularly in relation to setting the low dependency investment allocation and funding basis, assessing the employer covenant and setting the statement of strategy. Owing to the 40-day period during which the code must be laid before Parliament before it can come into force, there will be a gap between when the requirements of the funding and investment strategy regulations start to apply, and when the new code is actually in force. The funding and investment regulations cross-refer to the code, so TPR recommends that trustees with valuation dates from 22 September 2024 use the new code to inform their approach, even though it will not be in force by 22 September. TPR has said that the code represents a clear indication of what TPR intends the code to be, but if the code needs to change before it becomes effective, TPR will be a proportionate regulator. TPR has also published its response to consultation on the code, along with its response to the fast track and regulatory approach consultation.
In June 2023, the High Court ruled in the case of Virgin Media v NTL that amendments to benefits in schemes that were contracted out on the reference scheme test basis between 6 April 1997 and 5 April 2016 are void if they were made without written confirmation from the scheme actuary that the scheme would continue to meet the reference scheme test. Part of the decision was appealed, and the Court of Appeal has now handed down its judgment confirming the High Court decision. It is not yet known whether there will be any further hearings, or a further appeal. As the decision stands, it could have costly implications for some pension schemes that are unable to locate written actuarial confirmation in relation to certain scheme amendments. Our publication contains further information and some suggestions for trustees who are deciding on next steps. Please get in touch with your usual firm contact if you require further information or assistance.
TPR has updated its DB superfunds guidance, which sets out TPR’s expectations for those establishing and operating superfunds. The number of DB superfunds is expected to increase as the DB market consolidates, and although the updated guidance paves the way for new models to emerge, they will continue to be subject to rigorous regulatory oversight. Among other changes, the updated guidance provides that capital can be released from a superfund up to twice a year when specific triggers and safeguards are met. We await DB superfund legislation, which will be contained in the forthcoming pension schemes bill announced in the background papers to the King's Speech on 17 July, expected to be consulted on later in the year.
The chancellor has announced that an autumn budget will take place on 30 October 2024, with a reminder of a “pensions investment review to unlock capital for our businesses”.