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Pensions: Joint DB & DC trustee agenda update - January 2023

Welcome to our monthly update on current legal issues for trustees of DB and hybrid pension schemes, designed to help you stay up-to-date with key developments between trustee meetings, and to support the legal update item on your next trustee agenda. We also have a separate DC-only briefing.

DB funding Code NEW

The Pensions Regulator (TPR) has launched a 14-week consultation on its revised DB funding Code of Practice, ending on 24 March 2023. The consultation package includes the draft Code and a document explaining TPR’s Fast Track approach, plus consultation questions and TPR’s response to its previous consultation (read more).

The draft Code sets out TPR’s expectations on the new funding and investment strategy and statement of strategy requirements; more detail on covenant assessment; and in-depth content for schemes on long-term planning, including how the new low dependency requirements (asset allocation and funding basis) should operate, both before and after a scheme’s point of significant maturity. It also sets out how the new ‘twin track’ approach to valuations will operate; in a change from the original proposals, the Fast Track parameters will be used as a filter to assess which schemes may require further regulatory intervention.

The Code is due to come into force on 1 October 2023 (applying to valuations with an effective date after that point).

ACTION: Review/arrange training on the draft Code; consider the impact on your funding approach and whether to respond to the consultation.

Market volatility: regulators’ guidance UPDATED

A number of regulators, including TPR, have released statements in relation to liability-driven investments (LDI) (read more). The statements set out expectations in relation to levels of resilience to future market movements. TPR’s statement also focuses on pension scheme governance arrangements being sufficient to react quickly in stress situations, and sets out steps it expects schemes to carry out. This follows on from TPR’s October statement for trustees on managing investment and liquidity risk (read more).

ACTION: Read the statements and consider any scheme-specific implications, including which actions may apply to your scheme.

DC transfers guidance

The Pensions Administration Standards Association (PASA) has published good practice guidance on DC transfer processes. The guidance is voluntary, but PASA anticipates that the Pensions Ombudsman will use it as a reference point when reviewing complaints. The guidance includes example member communications, checklists and a transfer template (read more).

ACTION: Check your processes against the guidance to ensure best practice.

DC: illiquid investments and performance fees UPDATED

The government has published draft regulations and guidance intended to broaden the investment opportunities of DC schemes, alongside a response to part of the March 2022 consultation on facilitating investment in illiquid assets (read more). The regulations are expected to be laid before Parliament early in 2023.

Key proposals include flexibility to exclude specified performance-based fees from the default fund charge cap, and requirements for relevant DC schemes to disclose and explain: (i) their policies on illiquid investments; and (ii) the proportions of default fund assets allocated to different asset classes at various specified member ages.

ACTION: Keep a watching brief and consider the proposals as part of investment discussions.

Dashboards developments UPDATED

Regulations setting out the requirements for dashboards and schemes interacting with them, including the staging deadlines for connection to the dashboards ecosystem, have been approved (read more).The Pensions Dashboards Programme has published a revised suite of standards (read more), along with responses to consultation on those standards (read more); a new consultation on design standards (read more); and an at-a-glance guide to the staging timetable (read more). In addition, the government has finalised guidance for schemes considering applying for deferral of their connection deadline (read more) and TPR has published a draft dashboards compliance and enforcement policy for consultation (read more).

ACTION: Ensure your scheme is taking steps to meet the requirements in the regulations.

Have your say

  • A consultation has been launched on the VAT treatment of fund management. The proposals will set out criteria for funds that benefit from a VAT exemption. They are intended to codify existing policy, not make changes to the status quo (read more).

Watch this space

  • The government has consulted on changes to the notifiable events regime. There is currently no revised date for the delayed regulations (read more).
  • TPR has consulted on its proposed single code of practice: watch our webinar on the proposals and read TPR’s interim response. Publication of the revised version of the code is expected soon.
  • A revised code on transfers, and other materials from the Pension Scams Industry Group, are also awaited.
  • TPR will be launching a joint consultation with the Financial Conduct Authority (FCA) and DWP on a Value for Money Framework in 2023.
  • The Chancellor announced in the Autumn Statement that the results of a review of the current timetable to increase the state pension age will be published in early 2023.

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