It was busier than usual for the pensions industry in the first quarter of the year, marked by activity on the part of the regulator and the government that, ultimately, could have a significant impact on the way schemes are operated and managed in the future.
TPR consultation on strategy statement
The Pensions Regulator (TPR) is now consulting with trustees of defined benefit (DB) schemes on its proposals to help them align with new requirements for submitting their statement of strategy.
The Pensions Schemes Act 2021 asks for a long-term funding and investment strategy for schemes and from 22 September, trustees will be required to complete a full statement of strategy to be submitted alongside their actuarial valuation.
TPR says the statement will be a “useful tool” to support trustees in their long-term planning and risk management, and “facilitate engagement” between trustees, employers and itself. It has created statement templates to minimise the administrative burden on trustees and is now seeking feedback on them. The consultation runs for six weeks, closing on 16 April.
TPR rings structural changes
The regulator is implementing organisational changes to reinforce its strategic shift in overseeing the workplace pensions market, which it says is “rapidly evolving towards a competitive marketplace of fewer, larger schemes” and thus presenting different risks and opportunities for savers and the economy.
From April, three new regulatory functions will be created – Regulatory Compliance, Market Oversight and Strategy, Policy and Analysis. TPR claims the changes will protect pension savers’ interests, enhance the market through strategic engagement and evolve the regulatory framework.
DWP sets out pension scheme plans
The Department for Work and Pensions (DWP) has launched a consultation on its plans it says will ensure the £1.4 trillion held by pension schemes delivers for savers and the economy. They include making surplus extraction easier for well-funded defined benefit schemes and a public sector consolidator operated by the Pension Protection Fund.
Its consultation, which runs until 19 April – seeks views on how the money held in DB schemes can be “best unlocked” in the interest of savers and for sustainable investment in the wider economy.
Minister for Pensions, Paul Maynard said: “We are in a welcome position with DB pension schemes enjoying high levels of funding, and we want to make this money work harder for savers and the wider economy. I welcome industry views on our plans to reform the pensions market.”
PPF target levy collection halved
The Pension Protection Fund (PPF) has announced its final levy rules for 2024/25, confirming a 50 per cent reduction in its target levy collection to £100m. The PPF also said it has passed on responses to the Department for Work and Pensions to a consultation supporting a change in legislation to allow the levy to be reduced further.
The levy finances the PPF which protects members of eligible defined benefit schemes if sponsoring employers become insolvent.
Data reveals state of the industry
New data for last year from The Pensions Regulator (TPR) reveals the state of health of the pensions industry. It shows 4 per cent of defined benefit (DB) pension schemes, with a combined membership of 1.2 million savers, remained open to new members in 2023.
A further 20 per cent, with total membership of 2.7 million, remained open to future accrual for their existing members. Some 72 per cent of schemes were closed to future accrual and the remaining 4 per cent of schemes were in the process of winding up. The total number of schemes fell by 2 per cent, from 5,378 to 5,297.
Meanwhile the Pension Protection Fund’s Pensions Universe Risk Profile, the Purple Book, reported that the overall net funding position improved to a surplus of £358.9bn in the year to 31 March 2023, with more than 80 per cent of schemes in surplus.
MHM’s Opinion
In our view, the nature and extent of this quarter’s announcements by the regulator and government can be interpreted as a sign that the pensions industry is healthy and that it is well-managed by trustees, businesses and sponsors, providing financial support and reassurance to members in a way that represents value for money.
The data from TPR and the PPF tend to support this view but drilling down into the details, we can see there are some challenging requirements ahead for the industry. We believe these are achievable, but with a caveat that the regulatory requirements should remain relevant and logical without descending into over management or becoming a bureaucratic burden, particularly for smaller schemes.
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