With the addition of revised guidance on assessing employer covenants, it would seem fair to say that The Pensions Regulator (TPR) has now published all the essential items needed for trustees and their advisers to get started on valuations with effective dates on or after 22 September 2024. So this is probably a good time at which to take stock, step back from all the detail, and look at the new funding regime in the round.

The official framework for the new funding regime is still set out in legislation, in Part 3 of the Pensions Act 2004 (as amended by the Pension Schemes Act 2021). At its heart there now sits a revised Defined Benefit Funding Code of Practice, backed up by detailed Regulations. The Code of Practice, having been laid before Parliament on 29 July 2024, officially entered force on 12 November 2024.

For all practical purposes, though, TPR have made it clear that trustees and their advisers should simply regard every aspect of the new funding regime as having applied from 22 September 2024 for valuations having an effective date on or after that date, and for all related activities.

The core reform made by the new funding regime is a requirement for the trustees of defined benefit occupational pension schemes to devise, maintain and file with TPR an over-arching Funding and Investment Strategy (FIS) setting out how they intend the scheme to provide its benefits over the long term.

Clearer recognition is given in the FIS requirements (and throughout the new regime) to a number of features of the current defined benefit pensions landscape that could be argued to have crept up on the official regulatory regime. In particular, this means recognising that the schemes covered are most typically closed to future accrual, and an increased prominence, where appropriate, to end-game issues.

Simplicity, unfortunately, is a minor casualty of the new funding regime. Despite TPR's best efforts, its official Document Library is far from uniformly hierarchical in its layout (though many would no doubt claim this as one its strengths). However, for reference the main structural components of the new funding regime, besides the Pensions Act 2004 itself, are:-

For all "activities related to valuations with effective dates before 22 September 2024" the previous Funding Code of Practice (2014) still applies. However, beyond determining what is formally required to complete older valuations to TPR's satisfaction, the practical relevance of this must surely already be very low and it can only be expected to decline in the coming months.

Realistically, TPR's general expectations must already have become increasingly shaped by the concepts, attitudes and approaches of the new regime, and it's worth noting too that nothing in the revised Covenant Guidance would seem to confine it to matters relating to more recent valuations.

It would be naughty of us, as the holiday season approaches, to suggest that you might act out any part of them in a Christmas Day game of charades. But if you haven't managed to spend some quality time with them just yet, the new DB Funding Code of Practice and revised Covenant Guidance are certainly recommended reading!

Contributors

Juliet Bayne

Partner

Alistair Hill

Legal Director