Following on from the laying of the 'Defined benefit funding code of practice' before Parliament in July 2024, in September, the Pensions Regulator (TPR) published revised statement of strategy templates for schemes with valuation effective dates of 22 September 2024 and later.

The statement of strategy is one of the key building blocks of the DB funding regime, and we discussed this new regime in our insight 'Defined benefit scheme funding – the new regime takes final shape' (9 September 2024).

Statements of strategy will need to be submitted to TPR in digital form through a new digital service which TPR is launching in spring 2025.

The DB funding regime in a nutshell

Schemes with actuarial valuations with effective dates on and from 22 September 2024 must:

  • have a funding and investment strategy (FIS) which sets out the scheme's long-term funding objective and details how the scheme will move towards being fully funded at the point of significant maturity;
  • document the FIS in a statement of strategy; and
  • submit the statement of strategy to TPR, along with supporting documentation, using either TPR's 'Fast Track' or 'Bespoke approach' routes.

The DB Funding Code is anticipated to be in force by November 2024, but it applies from 22 September 2024. As part of the new regime, TPR published a consultation on a proposed approach to the statement of strategy in March 2024. Following feedback, in September, TPR published revised template statements to help trustees with the planning and managing of their DB scheme funding process.

The new statement of strategy templates

There are four statement of strategy templates, depending on whether the scheme's valuation date is before or after the scheme reaches significant maturity (the relevant date), as follows:

TPR also published a list of corresponding data and information, which contains further guidance and an explanation of terminology used.

TPR highlights key changes

Alongside the templates, TPR published a summary of key themes arising from its consultation by way of an interim response. TPR says it has listened to the feedback given by the pensions industry and the revised templates have now been simplified, as follows:

  • the templates have more 'narrative boxes', where additional comments can be made;
  • the templates better accommodate open schemes, GMP underpin schemes and cash balance schemes;
  • there is one definition of 'small scheme'.  TPR estimates around 50% of schemes will be eligible for the small scheme easement which reduces the information to be provided and small schemes meeting the Fast Track parameters will not have to submit detailed covenant information;
  • the requirement to submit detailed covenant information for specified 'low risk' schemes has also been removed.  Low risk schemes are those following the Fast Track route which are in surplus on a low dependency funding basis after applying an immediate Fast Tack stress test or where full benefits for all members have been secured with an insurer. They also include schemes following the Bespoke approach which have reached their relevant date and would be in surplus on a low depending funding basis after the application of an immediate stress test;
  • the long-term objectives to provide benefits will be inputted using text rather than a defined set of choices;
  • small schemes, and schemes adopting the Fast Track route will not have to submit cashflow information;
  • TPR requires one set of cashflows in relation to total accrued benefits on a technical provisions' basis.  There is no requirement for cashflows to be submitted in respect of future service;
  • for discount rates, there are more methodology options and the number of years for the provision of forward yield has been reduced to 40;
  • there are two new questions on sensitivity to inflation values, and less information is now required in relation to commutation;
  • defined contribution and cash balance liabilities are captured, where relevant;
  • in relation to strategic asset allocations, there is reference to a notional investment allocation and schemes provide information on this in line with the relevant section of their scheme return;
  • in relation to de-risking journey plans, trustees must provide a high-level overview of how they expect the notional investment allocation to evolve in line with the examples set out in the DB Funding Code (e.g. linear or stepped evolution) and can provide supplementary narratives;
  • information on investment risk over the scheme's journey plan has been simplified;
  • additional information has been added for schemes with specific target interest rate, inflation hedging ratios or both at the relevant date;
  • the requirement to submit information about currency hedging has been removed; and
  • covenant information has been made easier for schemes to report, e.g. multi-employer schemes can aggregate covenant data.

These simplifications are helpful. TPR will issue its final response on the consultation this winter and will publish new covenant guidance in the next few months.

Digital submission of statements of strategy and supporting documentation

TPR is developing a digital service for submission of statements of strategy (and other documents, such as a copy of the actuarial valuation and any schedule of contributions and recovery plan). The service is intended to be operational by spring 2025. TPR does not expect trustees to delay completing valuations, and TPR has confirmed it will not be a breach of trustee obligations if the statement cannot be submitted because the digital service isn't live yet.

TPR says schemes with effective valuations dates before 22 September 2024 should follow the earlier DB funding code of practice issued in July 2014 and submit information and documentation using the existing process via TPR's Exchange online service.

Take the time to prepare

Trustees should continue to engage with employers and advisors regarding plans for long-term funding, particularly in terms of identifying and working towards the key dates relevant to the scheme. They should also consider whether the Fast Track route or Bespoke approach is more suitable for the scheme's circumstances and take a look at the template statements of strategy so that the process of collating the information likely to be required can begin.

For more information on any of the points covered here or to discuss any wider pensions-related issues for your business, please contact Ben Goldby or Ian Chapman-Curry.