Commenting on the DWP consultation, Draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023, Laura McLaren, Partner, Hymans Robertson says:

"Today’s long-awaited consultation launched by the DWP into regulations underpinning the new defined benefit funding code is an important step forward. After numerous delays, notably it is expected to pave the way for the Pensions Regulator to launch its second consultation into the Code of Practice later this year. That keeps plans on track – at least for now – for the Code to launch in late 2023.

“Following Royal Assent on the Pension Schemes Act 2021, this ‘secondary’ legislation starts to flesh out more on the new rules and establishes where the Regulator will be able to step in if a scheme is falling short of the legal requirements. However, the draft regulations don’t offer a great deal more in terms of specifics than had previously been signposted in consultation to date. Largely sticking to pinning down the key principles, there isn’t anything in the draft legislation about Fast Track and Bespoke arrangements, and nothing confirming the specific Fast Track parameters. All of that is left for the Code of Practice.

“The Pensions Regulator has announced it will be launching the draft Code of Practice in the Autumn after seeing DWP’s draft regulations. Given the draft regulations and tone of the Regulator’s responses to date, this looks unlikely to change fundamentally. There is some welcome reassurance that concerns raised by respondents are being addressed. In developing the draft Regulations, DWP note they have aimed to ensure they will not unduly constrain open schemes. The Regulator has also been keen to address widespread concerns around scheme specific flexibility in the Bespoke route.

“Given the developments since the first consultation was published, most will be watching to see where the final Fast Track parameters are pinned down. The draft regulations confirm that the maturity of a scheme will be measured using a duration of liabilities but, for now, leaves the point at which a scheme is deemed ‘significantly mature’ to be defined by the Code. Similarly, the regulations include a principle that funding deficits should be recovered as soon as the sponsoring employer can reasonably afford, but stop short of defining any more clearly what is appropriate in the context of a recovery plan length or structure. Definitions of a ‘low dependency’ investment allocation and funding basis stick to principles rather than putting figures to these.

“Whilst DWP and TPR take time to get the changes right, trustees and sponsors will continue to need to prepare funding valuations knowing that new rules are coming down the line. However, as the final details start to be pinned down, these should help those agreeing funding plans in 2022 and 2023 better understand how they are likely to work with the new code coming in 2025 / 2026.”