Defined Benefit Funding: a long-awaited update

On Wednesday 29 November, the Pensions Regulator (TPR) confirmed that the Defined Benefit (DB) Funding Code (the Code) and the DB Funding Regulations (the Regulations) will be launched in early 2024. Louise Davey, who made these comments as part of oral evidence presented to the Work and Pensions Committee in its DB pension schemes inquiry, spoke alongside TPR chief executive Nausicaa Delfas. The Regulations and the Code are expected to be in place by April 2024 and be operational for schemes which have actuarial valuations beginning from Autumn 2024 (which will be due to be finalised in late 2025).

While it’s helpful to have a sense of when the Code and Regulations will be in force, there are a number of points which trustees, sponsors and their advisers will want clarified in the coming months, specifically in relation to the onus which will be put on DB schemes (we have reported on the outcomes of the Code and Regulations consultations here and here).

We previously commented on how the new regime seems to run counter to the government’s Mansion House reforms, further details of which were released with the Autumn Statement (see more here) and which aim to encourage DB schemes to take a more active role in investing in growth assets and thereby in the revitalising of the UK capital and investment markets.  The general perception is that the Code and the Regulations may introduce stringent and mandatory risk reduction requirements into the DB system and reinforce what has already been an increasingly risk-averse approach, whereas the Mansion House reforms seek to encourage DB schemes to take advantage of a wider range of investment options and so open up greater potential for investment returns and economic growth. TPR has apparently acknowledged this, commenting that the Code has been revised and is “entirely consistent” with the reforms. We may need to wait for the final Code to see these revisions.  

If you would like to discuss any issues relating to the new scheme funding regime, or the defined benefit pensions “endgame” more generally, please get in touch with your usual Freshfields contact or any of the authors.