DB funding – update on revised code of practice

The Pensions Regulator (the “Regulator”) has announced that it will not now consult on a revised defined benefit (“DB”) funding code of practice until late summer 2022.

Background

The Regulator’s current code of practice on DB scheme funding came into force in 2014. In 2020, the Regulator carried out the first of two consultations on a proposed revised code of practice. This first consultation covered:

• The Regulator’s proposed new regulatory approach to DB funding.
• The principles the Regulator thought should underpin the new DB funding framework.
• How those principles could be applied in practice to provide clearer guidelines.

The Regulator was due to carry out its second consultation, on a draft of the revised code, in 2021.

The Pension Schemes Act 2021 introduces a requirement for trustees of DB schemes to produce a written funding and investment strategy. This must specify the funding level that the trustees plan for the scheme to have achieved by a particular date (to be determined by regulations). It must also detail the investments that the trustees intend the scheme to hold at that date. The strategy must be agreed with the employer. Regulations will set out further detail on what the strategy needs to cover. The Regulator’s revised code of practice is also intended to provide additional guidance.

Regulator announcement

According to the Regulator, the government will consult this spring on draft regulations setting out the detail around the new funding and investment strategy requirement. The Regulator wants to take account of that consultation before publishing the draft code for consultation. It therefore expects to publish its consultation in late summer. The Regulator’s announcement also confirms that the new code will only apply to scheme valuations with an effective date falling on or after the date on which the code comes into effect.

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