Ministers have launched a consultation on measures to improve the long-term funding of defined benefit (DB) pension schemes and protections for members.
Under proposals released by the Department for Work and Pensions today, “final salary” schemes will need to have a long-term funding and investment strategy laid out and will have to submit these plans to The Pensions Regulator.
The consultation follows last year’s Pension Schemes Act, which set out the framework for the regulations, together with an engagement programme with stakeholders connected with a range of schemes.
Minister for pensions Guy Opperman said: “Most DB schemes are well managed. However, despite the safeguards in place, best practice is not universal.
“Our intention is to have better – and clearer – funding standards, whilst retaining the strengths of a flexible, scheme-specific approach. It is neither ‘one size fits all’, nor about micro-managing schemes. Every scheme will be treated on its merits.
“Millions of people rely on defined benefit schemes. Our new measures will help ensure they are protected for the long-term.”
Almost 10 million people in the UK are in DB schemes, although only a tenth of that number are actively paying into one.
The proposed measures intend to contribute towards “clearer funding standards” and to support pension trustees and employers to plan funding over the longer-term, embedding good practice already seen in the market, as well as requiring trustees to report progress against scheme targets.
The plans will also enable TPR to intervene more efficiently. Where a scheme appears to be falling short of its legal requirements, the Pensions Regulator will be able to step in and engage with the scheme to ensure compliance and boost member security.
Charles Counsell, chief executive of The Pensions Regulator, welcomed the proposed measures saying it would be able to regulate DB scheme funding more robustly in the future.
“We will now take into account the draft regulations as we shape our new DB Funding Code of Practice, which we expect to consult upon in the autumn. We want schemes to have the continued flexibility on funding to suit their circumstances, while improving journey planning and security for pension savers over the long term.”
The consultation on the Draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023 runs for 12 weeks, with the DWP seeking feedback from trustees and managers of DB schemes, employers, scheme members and other stakeholders.
Earlier this month, data from Mercer showed that DB pension schemes for the FTSE 350 had moved to a surplus, standing at a total surplus of £11bn by 30 June 2022.
A survey by PwC released this week showed that approximately four out of five DB pension schemes have already set long-term funding targets, in readiness for the new regulations.