Pensions Insight: 27 March to 3 April 2023

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Gateley Legal

In this insight we report on key recent pensions developments including the Government delaying its decision on bringing forward the increase of State Pension Age to 68; TPR’s equality, diversity and inclusion guidance; and the latest on liability-driven investment.

Government’s SPA Review – decision on accelerating SPA increase to 68 delayed

The Government published its State Pension Age (SPA) Review on 30 March 2023. This is the second of the six-yearly reviews that are required under the Pensions Act 2014 and was preceded by considerable press attention.

In short, the Review confirms that the increase to SPA from 66 to 67 will go ahead between 2026-2028. However, the Government has put off deciding on whether to accelerate the SPA increase to 68 until within two years after the next Parliament, so by the end of 2026/ beginning of 2027 at the latest. The Government was considering whether to bring forward the SPA increase to 68 by seven years so that, instead of taking place between 2044 and 2046 for those born on or after April 1977 as currently planned, it would happen between 2037 to 2039.

The Review explains that ‘all options’ for the rise to SPA from 67 to 68 that “meet the 10 years notice period” will be on the table for consideration at the next review. Part of the reason for the delay is that there is present uncertainty regarding the data on life expectancy, labour markets and public finances. The Government wants clearer and updated information before making a decision. Depending on the timings of this next review and requisite notice period an acceleration to 2037-2039 may still be on the cards.

Pensions Regulator guidance on equality, diversity and inclusion (EDI)

On 28 March 2023, the Pensions Regulator launched EDI guidance for trustees and separate EDI employer guidance. EDI has an important role to play in effective trusteeship including in relation to decision-making, governance and the performance of trustee duties, particularly around decision-making and member interaction. The guidance sets out practical ways and helpful examples of how EDI can be improved including some ‘quick and easy steps’.

Trustee guidance

Areas covered by the trustee guidance include the following.

  • Training and EDI policy: the Regulator suggests setting up training and having an EDI policy with an agreed EDI definition and an outline of the trustees’ EDI aims.
    Helpful first steps for trustees will be for them to look at training needs, consider their EDI strategy and produce an EDI policy (or revisit this if they already have one).
  • Role of the chair: the importance of the chair in being able to drive EDI improvements is noted together with specific ways in which this can be achieved.
  • Assessing the performance of the governing body: an annual assessment should cover the embedding of EDI into scheme processes with goals and objectives set at the beginning of the scheme year. A review will start with identifying gaps – the guidance provides helpful pointers on this and the selection process.
  • Enhancing board diversity: part of effective EDI includes a regular assessment of the trustees’ diversity of life experiences, expertise and skills. There is encouragement for employers to look at increasing the pool from which trustees are drawn beyond senior management and for the fostering of an inclusive trustee body culture.
  • Fixed-term appointments: the guidance looks at how EDI can be improved through having fixed-term appointments for member-nominated trustees, rotation of individuals at a professional trustee firm working on a scheme and addressing diversity issues with member /employer-nominated trustees through a professional trustee appointment.
  • Reasonable adjustments: there is also a reminder of the legal requirements in respect of making reasonable adjustments for candidates and existing trustees.
  • Recruitment: there are suggestions on how to attract more diverse trustee candidates.
  • Looking outside the trustee board: the guidance notes the assistance that can be drawn in terms of diversity of thought from service providers and advisers and trustee sub-committees and forums.

The Regulator has also added a section on inclusive communications to its communicating & reporting for defined contribution (DC) schemes guidance.

Employer guidance

This covers practical actions that employers can take to improve EDI on the trustee board including through recruitment and making sure employees have enough time to undertake trustee duties. It has sections on trustee diversity improving decision-making, trustee recruitment, who can and who should be a trustee and appointing a chair and professional trustee. It also has a section on statutory protections for employees who are trustees of employer sponsored schemes.


Trustees (and employers) should review the guidance and consider how they can improve EDI on their schemes. As well as the guidance, the Regulator has produced an EDI overview, a template trustee recruitment leaflet and an example advertisement for trustee candidates.

Financial and investment developments

Bank of England – banking, market-based finance and LDI resilience

The Bank of England’s (BoE) Financial Policy Summary and Record – March 2023 discusses resilience of banks, non-bank finance and specifically liability-driven investment (LDI).

This follows the recent failures in the banking sector, notably Silicon Valley Bank and Credit Suisse and the turmoil caused for LDI funds following the Autumn Budget last September.

The BoE’s Financial Policy Committee (the FPC) has responsibility for identifying, monitoring and addressing resilience risks relating to the overall UK financial system, so part of this includes not just consideration of banking matters but also non-bank finance including LDI fund resilience.

Banking sector resilience – monitoring overseas but UK resilience sufficient

In summary, the FPC explains that it is monitoring developments on the failures of overseas banks which have led to caution amongst investors and that UK banks are “resilient and are strong enough to support households and businesses”.

Non-bank financial institutions require more resilience

There are noted ‘vulnerabilities’ in ‘market-based finance’ (equity and debt markets, non-bank financial institutions such as investment funds e.g. LDI, and infrastructure) which means improved resilience is urgently required. As the BoE does not regulate many of these firms it will have to work with other regulators to achieve this.

LDI recommendations – increased resilience levels needed

The FPC has recommended that the Pensions Regulator specify minimum resilience levels for LDI funds (and that the ‘yield shock size’ to which LDI funds should be resilient should be a minimum 250 basis points – currently, a temporary average Yield Buffer of 300-400 bps has been set). A 250bps level would provide protection and an appropriate buffer against normal events and ‘severe but plausible historical stress’.

The FPC also recommends that the Regulator should be able to consider financial stability on a ‘continuing basis’, for example, through building this into its objectives. A framework for LDI resilience is being worked upon – in the meantime the Regulator, together with the Financial Conduct Authority and overseas regulators, will oversee resilience levels to ensure that these are maintained at an appropriate level.

The Regulator expects to issue further LDI guidance in April 2023 which will address matters such as resilience. In the meantime, schemes should follow the Regulator’s current guidance (see our Insight).


It is important that schemes monitor economic and financial developments so that they can act accordingly (and in a suitable timeframe) when significant events occur that could impact the scheme. This will require appropriate liaison with advisers given the implications are likely to include funding and investment matters.

LDI: WPC inquiry update

When giving evidence to the Work and Pensions Committee (WPC) as part of its current inquiry into LDI, the Pensions Minister confirmed that, despite the issues with LDI that the recent gilt market volatility highlighted, it still has a “useful place…in the overall investment options available to pension schemes” and there are no present plans to impose standards or reporting requirements on trustees’ use of leveraged LDI. This contrasts in part to the recent indications from the Pensions Regulator that it is looking at introducing reporting requirements perhaps through the notifiable events regime (see our Insight).

It was also confirmed that the Government is waiting for the recommendations from both the WPC LDI inquiry and the House of Lords’ one to become available before issuing the revised funding and investment regulations that will bring in a revised defined benefit (DB) funding regime (see our Insight).

PPF updated valuation assumptions

The Pension Protection Fund (PPF) has confirmed in its consultation response that it will be adopting updated assumptions under sections 143 and 179 of the Pensions Act 2004 (see our Insight for an explanation of these valuations and further details of the consultation).

Such valuations must be calculated in line with the PPF’s estimate of how much it would cost to secure PPF levels of compensation with a bulk annuity provider bought at the market’s best value rate. The assumption changes essentially mean that “those schemes who may be able to secure benefits above PPF levels are given the opportunity to test the market” and consider reduced bulk annuity pricing. The updated assumptions will take effect from 1 May 2023 (rather than from 1 April 2023 as originally proposed) – the guidance can be found here. They include adoption of a yield curve approach for assessing entry to the PPF which means liabilities can be valued more accurately. “The combined impact for almost all schemes will be a reduction in the assessed value of scheme liabilities”.

Bill on deferred small pots withdrawn

In our early March Insight, we reported that Conservative MP Anthony Browne had introduced a Bill under the Ten-Minute Rule, that would introduce a single lifetime provider/ single pot model solution to deal with the issue of deferred small pension pots. This has now been withdrawn and so will not go any further, at least for the time being.

Pensions dashboards – PASA publishes more guidance

PASA has released two new sets of guidance (see here):

  1. on the information that administrators and pension providers can give to pension savers who ask about dashboards before they become operational; and
  2. supplementary guidance on the PASA Data Matching Guidance covering matching without a National Insurance number and possible match responses.

PLSA Stewardship and Voting Guidelines 2023

The Pensions and Lifetime Savings Association (PLSA) has published its Stewardship and Voting Guidelines 2023. These provide a framework for trustees and investors to make sure that companies are held to account on central issues by providing information designed to help them decide how to exercise AGM votes. They also set out what trustees should be looking at on board leadership and evaluation, audit and capital structure.

Updated Green Finance Strategy from the Government

On 30 March 2023, the Department for Energy Security and Net Zero published an update to the Government’s 2019 Green Finance Strategy (the Strategy), the UK being the first major country to have published such a strategy.

The Strategy relates to green investment and the opportunities for the UK’s financial and professional services, in light of the UK’s target for net zero by 2050 and its environmental objectives. It sets out how the Government plans to become the world’s first Net Zero aligned Financial Centre and the measures the Government is planning to take to achieve its objectives in relation to green finance.

The Government believes that the UK’s world-leading financial services sector can propel the global transition to net zero. Indeed, the UK financial services industry has made a lot of progress in developing itself as a global green finance centre – London has been ranked on the Global Green Finance Index as the leading financial centre for the third consecutive year.

The main next steps for progression include:

  • a consultation later this year (autumn/ winter) regarding the largest companies having to disclose net zero transition plans;
  • another consultation in autumn 2023 on the Government’s UK green taxonomy plans – this will set out definitions of economic activities considered to be environmentally sustainable (green) or taxonomy-aligned; and
  • reviewing whether the global sustainability disclosure standards being prepared by the International Sustainability Standards Board will be suitable for the UK – the final standards are expected this summer.

The update also includes details of new plans:

  • to issue a call for evidence on reporting scope 3 greenhouse gas (GHG) emissions;
  • to consult on the steps required to support the growth of high integrity voluntary carbon markets and protect against greenwashing; and
  • for the Department for Work and Pensions (DWP), Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) to review the regulatory framework for effective stewardship.

No specific action is required by schemes on the latest ESG offering from the Government, but schemes should continue to monitor ESG developments generally and look out for what the Pensions Regulator has to say on ESG and stewardship in the final version of its new general code of practice that is expected imminently.

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