Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

This week we cover the following topics: DB funding regulations published; Securitisation Regulations 2024: change to the regulatory perimeter; PPF updates valuation guidance; PPF levy ceiling updated.

DB funding regulations published

The government has published the final version of the DB Funding regulations, together with its response to the consultation on the regulations. Subject to Parliamentary approval, the regulations will come into force from 6 April 2024, applying to scheme valuations on and after 22 September 2024.

Much of the detail about how the regulations apply will only be clear once the Pensions Regulator (TPR) publishes the final version of the DB Funding Code, but key points to note from the response to the consultation include:

• Following concerns about the impact of the draft regulations on trustees’ powers of investment, the government has clarified that ‘while the Funding and Investment Strategy (FIS) must reflect the principle of reaching full funding by the relevant date, there is no free-standing requirement for trustees or managers to invest in line with the Low Dependency Investment Allocation (LDIA). The regulations do not change trustees’ duties in respect of investment decisions – they just set out the requirements for a plan to be in place for this’. The requirement to achieve ‘broad matching’ of cashflows with payment of pensions has been removed. The objective to invest in line with the LDIA (after the point of significant maturity) will not apply to surplus funding – so any additional risk will not be factored into the LDIA.
• Technical provisions in the FIS must be consistent with the funding journey plan as well as the low dependency funding basis as at the relevant date. Investments are not part of the FIS and employers do not need to agree them.
• Open schemes can take account of new entrants and future accrual when determining when the scheme will reach significant maturity. This will extend the period before the scheme is expected to reach low dependency, lowering funding requirements for these schemes compared to schemes that are closed.
• The government still considers the ‘duration of liabilities’ measure to be appropriate for assessing scheme maturity, but due to concerns about the potential volatility of the measure, the regulation now prescribes 31 March 2023 as the date on which economic assumptions used to calculate maturity must be based. The duration at which a scheme reaches maturity will be set out in the Code and there is an indication that TPR may set a different specified duration for cash balance arrangements.

Read the regulations.

Read the consultation response.

Securitisation Regulations 2024: change to the regulatory perimeter

We reported previously (read more) on a proposed new framework to replace the Securitisation Regulation (originating from EU law) and related legislation. The final regulations setting out that framework have now been published, confirming that the Financial Conduct Authority (rather than TPR as at present) will have responsibility for supervising securitisations by occupational pension schemes, as it does for other entities.

In a change from the earlier proposals, due diligence requirements for occupational pension schemes acting as institutional investors in securitisations will remain in legislation and be supervised by TPR; these requirements will be restated as part of a separate regulation later this year, to ensure that they are consistent with FCA and PRA rules applying to other institutional investors.

Read the regulations.

PPF updates valuation guidance

The Pension Protection Fund (PPF) has updated its guidance for pension schemes carrying out valuations for PPF purposes, together with its information note, to reflect how the Hampshire and Bauer judgments affect PPF compensation for schemes that enter an assessment period on or after 2 January 2024.

Read the valuation guidance and information note.

PPF levy ceiling updated

The annual Order increasing the Pension Protection Fund levy ceiling amount has been published. The levy ceiling is increased annually in line with growth in the general level of earnings; the Order restricts the amount that can be collected by the Board of the PPF for the 2024/25 financial year.

Read the order.