What's on the pensions agenda in 2023?

The past year has proven to be incredibly eventful for the pensions industry. The downward spiral in liability driven investment funds which followed the September mini-budget caused pensions to make headline news. On a more positive note, the Pension Protection Fund announced a significant reduction in its levy for 2023/24 and we celebrated 10 years of automatic enrolment. What will 2023 bring for pension scheme trustees and sponsoring employers? We discuss our top predictions for the year ahead below.

Pensions Dashboards

It is likely that pensions dashboards will remain high on the agenda of scheme mangers and trustees throughout the year. The recent stream of dashboard-related consultations by the Pensions Dashboards Programme (PDP), the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) serve as a reminder that the pensions industry still has a lot of work to do before pensions dashboards go live in 2023. Take a look at our recent blog for a more in-depth discussion of the latest pensions dashboards developments and the key action points for trustees and scheme managers. In addition, look out for our next blog if you would like to find out more about TPR's recent consultation on its draft dashboards compliance and enforcement policy.

Equality, Diversity and Inclusion

Now more than ever, organisations and employers are being called upon to operate in a fair and inclusive manner and the pensions industry is likewise being looked upon to embrace the value of diversity and inclusion in pension scheme trustee boards and beyond in order to secure optimum outcomes for members. In June 2021, TPR published its Equality, Diversity and Inclusion Strategy which sets out how TPR will embed diversity and inclusion throughout its organisation and how it will support the regulated community to do the same.

In November 2022, TPR published a blog highlighting the progress of its Equality, Diversity and Inclusion initiatives and noting that while progress has been made, a significant amount of work remains. TPR identified a number of barriers to change, including complex scheme structures, slow rotation of trustees, long tenures and a need to ensure new trustees have strong industry knowledge so that they can govern effectively. TPR has encouraged schemes to explore ways they can gather, interpret and use data to bring about positive change across their organisations, including updating their recruitment processes, reviewing their succession planning and implementing skills and board effectiveness assessments to ensure boards are made up of suitably skilled trustees from diverse backgrounds.

While change is not likely to happen overnight, the blog notes that trustees are showing increasing willingness to embrace diversity and inclusion. It is likely that this trend will continue in 2023, particularly as the Regulator strives to achieve its strategic objective of promoting "high standards of diversity and inclusion among TPR's regulated community" by 2025.

Notifiable Events

The notifiable events regime has been in existence since 6 April 2005 with the primary purpose of providing TPR with an early warning of possible calls on the Pension Protection Fund. The Pension Schemes Act 2021 introduced significant changes to reporting obligations in order to better identify risks relating to scheme funding, employer solvency or the employer covenant. A consultation on the draft regulations was launched in September 2021 by the DWP and initial expectations were that the regulations would come into force in April 2022. However, we are still awaiting a response to the consultation and the publication of the finalised regulations, as highlighted in our previous blog. In the absence of further information, we can only speculate that 2023 will be the year we finally see the new notifiable events regime coming into force.

Single Code of Practice

In March 2021, TPR consulted on its new Single Code of Practice (the "Code"). It was initially expected that the Code would come into force in summer 2022 but implementation has since been delayed and we are now expecting the Code to come into force in 2023. The Code consolidates 10 of TPR's 15 existing codes into one web-based code, with the 5 remaining codes due to be reviewed at a later date. It also addresses the governance requirements arising from the UK's implementation of the second European Pensions Directive (IORP II) and the Governance Regulations 2018. Two key changes include the requirement for trustees to establish and operate an effective system of governance ("ESOG") and trustees of schemes with 100 or more members to complete an own risk assessment (“ORA”) of their ESOG. Trustees should carry out a gap analysis to ensure that their schemes are adequately equipped to satisfy these requirements.

Defined Benefit Funding Regime

There was a flurry of activity surrounding the new defined benefit funding regime towards the end of 2022. On 16 December 2022, TPR published the response to its first consultation, together with a draft DB funding code of practice, a consultation on the draft funding code, and a separate consultation on its twin track regulatory approach. The Regulator anticipates that the new funding regime will come into effect no earlier than 1 October 2023 and will apply to actuarial valuations with effective dates thereafter. Look out for our upcoming blog for a more in-depth discussion of both consultation documents.

Conclusion

With all of this regulatory and legislative change on the horizon, it is important that trustees and sponsoring employers understand the implications and more importantly, their obligations. If you would like to discuss any of the topics covered in this blog in more detail, please contact a member of the pensions team or your usual Brodies contact.