BREAKING NEWS! Final DB Funding Regulations just published by the DWP

The final version of the Defined Benefit (DB) Funding Regulations have just been published by the Department for Work and Pensions (DWP) today (Monday 29 January). Whilst the detail of the final version of the regulations is still to be worked through, it appears that they have been updated quite a bit to bring them more in line with the draft DB Funding Code and responses received from the industry during consultation.  

When will them come into force?

The regulations are due to come into force on 6 April 2024 and will apply to scheme valuations from September 2024. 

Brief summary of main changes

The Government’s consultation response notes that it worked closely with the Pensions Regulator (TPR) in revising the draft Regulations and that it has listened to the industry’s concerns, particularly around explicitly incorporating the flexibilities described in the draft Code into this updated version of the DB Funding Regulations. It had been felt by many within the pensions industry that the draft Code described a more flexible and scheme specific regime than was set out under the previous version of the Regulations.  

The consultation response also notes that the other key over-arching changes to the draft Regulations are as follows:-

  • making clearer the flexibilities that were intended within the draft Regulations. For example, the Regulations do not constrain actual investments and even mature schemes can invest in a wide range of assets;
  • providing assurance that the investment in the sustainable growth of sponsoring employers’ businesses is a matter to consider alongside the affordability principle;
  • making it explicit that open schemes can take account of new entrants and future accrual when determining when the scheme will reach significant maturity; and
  • making long-term planning and implementation easier and avoiding unnecessary administrative burden by giving TPR, for example, the flexibility to ask for less detailed information in some cases, depending on the circumstances of the scheme

The Regulations have also made what appear to be some helpful clarificatory revisals around: the definition of “low dependency investment allocation”; what is meant by the financial ability of the employer to support the scheme and assessing the strength of the employer covenant; what the funding and investment strategy should explicitly cover; and the level of detail that will be required in a scheme’s statement of strategy and at what times and on what occasions it should be provided to TPR. 

The Minister for Pensions, Paul Maynard MP, has said that “These Regulations demonstrate the clear scope for most schemes to take more investment risk, while keeping members’ benefits safe. That is why there are clearer metrics that set sensible limits. In this way we can encourage schemes to get their assets working hard for them, while ensuring that scheme members can be confident, they will get the benefits they were promised, and have worked hard for.”

Next Steps

The draft Regulations are still to be carefully digested by the pensions industry but early signs are quite promising in terms of the government taking on board consultation responses and seeking to bring them more in line with the draft DB Funding Code. As ever, the devil will be in the detail and we will undertake a fuller analysis of the Regulations in due course, so please do look out for that.  

This article was written by Mairi Carlin