On 5 March 2024, The Pensions Regulator (TPR) published its consultation on the statement of strategy that defined benefit (DB) schemes will be required to prepare for their first valuation with an effective date on or after 22 September 2024. The consultation closes on 16 April 2024.
TPR is proposing to provide a standard form for the statement of strategy in order to make the process easier for trustees and to remove some of the compliance risk. The consultation seeks views on the proposals, noting that failure to submit the statement in the form set by TPR will be a breach of law. The consultation includes an example statement of strategy, together with a lengthy list of the data and information that TPR anticipates DB scheme trustees will be required to provide for insertion into the template.
Under the new funding regime, trustees will be required to determine a ‘funding and investment strategy’ (FIS) that that sets out how they plan to reach low dependency funding by the time the scheme is significantly mature. The FIS will then need to be set out in writing in a statement of strategy that must be signed by the trustee chair and submitted to TPR. Further details of the content of the statement of strategy are set out in our Hot Topics article DWP publishes final draft funding and investment strategy regulations dated 30 January 2024.
The consultation notes that the new FIS regulations are closely interlinked with the existing requirements for actuarial valuations, and the statement of strategy template has been designed to facilitate consideration of the FIS together with the scheme’s actuarial valuation. The statement of strategy will be submitted to TPR alongside the scheme’s schedule of contributions and recovery plan (if required), but it will replace the existing requirement to submit a summary of the information from the actuarial valuation.
The consultation stresses that TPR is aiming for the information that schemes are required to submit to be proportionate. Consistent with that principle:
TPR notes that it has the discretion to ask for different levels of detail depending on scheme-specific circumstances and flags that this will allow it to adapt its approach over time. Once TPR’s DB funding code has been finalised, it intends to engage further on the information it expects to collect from trustees. TPR’s further guidance will be published alongside the final statement of strategy templates.
For Bespoke submissions, trustees will need to provide more detailed information on how their approach is compliant and how risks are being managed, with the level of detail provided varying depending on the level and complexity of risk being taken. In particular, TPR expects trustees to focus on demonstrating that the funding and investment risk is supportable by the employer covenant and in line with the maturity of the scheme, the recovery plan meets the ‘reasonable affordability’ principle and the long-term strategy is appropriate and in line with the legislation.
As Fast Track represents TPR’s view of the risk it will tolerate for regulatory engagement purposes, trustees can expect to provide less information in the statement of strategy, particularly in relation to covenant. TPR will undertake a high-level review to verify that any Fast Track submissions meet their criteria.
For a scheme that has passed its relevant date, the template will require less information, as the scheme will no longer have a journey plan to its relevant date and will already be required to have a strategy consistent with the principle that it is fully funded on a low dependency funding basis.
In addition to the information that other schemes will be required to provide, schemes that remain open to future benefit accrual will be required to provide details of the number of years of future accrual that have been allowed for when calculating the date of significant maturity, an estimate of scheme maturity after allowing for any future benefit accrual, active member cashflows split between those in respect of past benefit accrual and future benefit accrual, and details of scheme salary increases.
TPR is seeking responses to this consultation from any interested party, including trustees of DB schemes and their advisers, via an online response form before the closing date of 16 April 2024.
