|Here is our round-up of current issues and viewpoints from January 2022.
DB Funding Code – Delayed:
The Pension Regulator’s proposals for a new ‘twin-track’ DB funding regime, taking into account investment strategy and employer covenant, has been pushed further back. The draft Funding Code is now due to be published in ‘late summer’ 2022. It is not yet clear when the Code may come into force. It was previously expected that the new regime would apply for actuarial valuations from 1st January 2023. However, TPR has given a strong nudge to Trustees to voluntarily adopt some aspects of the new funding regime.
PPF Purple Book:
The PPF has published its ‘Purple Book’ which contains a wealth of data on over 5,000 DB schemes that are eligible for PPF protection. The aggregate S179 funding position improved in the year to 31st March 2021 and was higher than 100% for the first time in over a decade. The best funded schemes were the smallest. The aggregate S179 funding ratio for schemes with fewer than 100 members was 109.7%. The aggregate proportion of schemes’ assets in equities fell from 20.4% to 19%, whilst the proportion in bonds rose from 69.2% to 72%. The book notes that smaller schemes tend to have higher proportions in government and corporate bonds than in index-linked bonds and UK equities, rather than overseas and private equity. The Purple Book can be found here: PPF Purple Book
PPF Levy 2022/2023:
The PPF has confirmed its final levy rules for the year. These include a new measure to protect schemes whose levy would otherwise increase significantly due to the impact of the Covid-19 pandemic on insolvency risk scores. For this year, risk-based levies will not increase by more than 25% compared to the 2021/22 levy. In addition, the Small Scheme Adjustment, which saw levies reduced by up to 50% for some will remain, as will the existing easements on payments terms, where the usual 28-day payment terms would cause difficulties. The PPF estimates that it will collect £390million, which is a reduction of £130m on the previous year. The PPF has estimated that over 80% of schemes will see a reduction in their risk-based levy in 2022/23
TPR – Scheme Returns:
It will soon be time for schemes to complete a scheme return for TPR. For DB schemes, there will be new questions this year. Schemes with 100 members or more will have to provide the website address where the SIP and implementation statement have been published. The trustee assessment of the employer covenant rating must also be given, if available.
RPI reform – Judicial Review:
The High Court has approved an application for judicial review of the decision to bring RPI into line with CPIH from 2030. The application was made by the trustees of the BT, Ford, and M&S pension schemes. The trustees wish to contest the government’s decision and to protect scheme members and RPI linked assets from what they see as detrimental effects of the change. The hearing is expected to take place this summer.
State Pension Age – Time for a rethink?
The state pension age is due to increase to 67 between 2026 and 2028 and then to 68 between 2044 and 2046. The DWP is due to review whether this schedule remains appropriate in 2028. However, according to data from the Office for National Statistics, based on 2020 data, life-expectancy has fallen from when the original DWP review was conducted. The ONS data goes up to June 2020 and so does not fully consider the impact of the Covid-19 pandemic. The DWP is being urged by the pension industry to reconsider the rapid increase in changes planned to the state pension age.