Liability Driven Investment – TPR Guidance Statement: Now that the turbulence in the UK government debt market appears to have calmed down, TPR has issued guidance to trustees and their advisers. TPR has welcomed letters issued by regulators (referred to as National Competent Authorities) in Ireland and Luxembourg (where many LDI funds are located). The NCAs state that LDI funds currently have an average ‘yield buffer’ of 300 to 400 basis points. TPR expects the same level of resilience in all LDI fund mandates. If schemes do not have a ‘yield buffer’ in line with those specified by the NCAs then they must work with their advisers to demonstrate the buffer in place, carry out a risk assessment of how the scheme will respond to stressed market events, including how it will raise liquidity, and document the arrangements which will then need to be reviewed regularly. TPR also recommended that trustees review their governance processes and consider the challenges some schemes faced in September and October. This includes checking authorised signatories are up to date and that decisions can be made rapidly, stress testing the leveraged LDI pooled fund and non-leveraged LDI funds, considering the required capital amounts, how these would be met by sale of assets and the timescales involved. As an alternative, TPR suggests that Schemes may wish to consider, with the sponsoring employer, whether a line of credit could maintain liquidity where there is a short-term need. TPRs guidance can be found here: TPR: Maintaining LDI Resilience
In related news, the Bank of England’s Financial Policy Committee welcomed TPRs guidance but recommended that further steps are taken to fill regulatory and supervisory gaps. The FPC believes that LDI funds should be resilient enough to withstand severe, but plausible, market moves and recommends that regulators should set out appropriate minimum levels of resilience.
PPF Levy – An early Christmas Present? The PPF has confirmed the final levy rules for 2023/24 and most schemes can expect to see a substantial reduction in the risk-based levy that they pay. The PPF’s overall levy estimate for 2023/24 is £200m, which is almost half of the previous year. Whilst levy rates for individual schemes will depend on their particular circumstances, the PPF estimates that 98% of schemes will pay less next year.
New DB Funding Code – Update : David Fairs of TPR has confirmed that they are close to launching the second consultation on the funding code. The consultation, which will include the draft code of practice, is expected before Christmas. Mr Fairs has indicated that it is unusual to issue a draft code before Regulations are finalised and further revisions may be required. The consultation document will be open for 14 weeks.
PPF Purple Book – UK DB Scheme Statistics : The PPF has published the latest edition of the ‘Purple Book,’ which gives some interesting overview on the position of all the schemes that it covers. At the end of March 2022, only 34% of schemes had a deficit on the S179 (PPF) basis. The aggregate deficit had fallen from £129 billion in March 2021 to £61 billion at the end of March 2021. The report shows the largest ever fall in liabilities for DB schemes. Section 179 liabilities fell by almost 12 per cent, and buyout liabilities fell by 10 per cent in the year to March 2022. There is a wealth of data within the Purple Book, which can be found here: PPF Purple Book
Pensions Dashboards – Update: There have been further developments in connection with the introduction of pension dashboards. The FCA has published a consultation on the regulatory framework for pensions dashboard service firms. TPR has also launched a consultation on their approach to compliance and enforcement for pensions dashboards, which can be found here: TPR – Dashboards compliance and enforcement policy
Season’s Greetings: Everyone at Atkin Pensions and Atkin Trustees wishes you and yours a Happy Christmas and a peaceful and prosperous New Year. Our office will be closed from 23rd December, reopening on Tuesday 3rd January 2023.