In the first edition of our regular Insight for 2023, we cover the latest pensions developments – with a few pieces of Regulator and Pension Protection Fund (PPF) news to report on.
The Pensions Regulator round-up
New Chief Executive and departure of David Fairs in March 2023
The Pensions Regulator has confirmed the appointment of Nausicaa Delfas as the new Chief Executive to replace Charles Counsell as from March 2023. Ms Delfas is currently Executive Director, Governance, at the Financial Conduct Authority and was the interim Chief Executive and Chief Ombudsman at the Financial Ombudsman Service until October 2022.
In addition, David Fairs, the current Executive Director of Regulatory Policy, Analysis and Advice, will be leaving the Regulator role this March to ‘pursue new challenges’. Mr Fairs has been with the Regulator since July 2018 and has led the implementation of several headline policies including the introduction of expanded Regulator powers under the Pension Schemes Act 2021, CDC schemes and the new defined benefit (DB) funding code.
Defined contribution (DC) schemes: statement urging trustees to support DC savers during present economic difficulties
On 12 January 2023, the Regulator issued a guidance statement urging trustees to support DC savers during the present economic difficulties. The statement acts as a ‘checklist’ for trustees to set up an action plan and covers three main areas of focus:
The Regulator expects trustees to consider the statement and to action it appropriately so trustees of schemes with DC benefits should ensure that they are familiar with the statement and they liaise with advisers as regards to specific steps that may need to be taken to ‘support’ DC members.
Revised DB funding code of practice
Since our last regular Insight we have produced an in-depth piece on the Regulator’s revised DB funding code of practice – this can be accessed here.
Pension Protection Fund (PPF) round-up
Consultation on updated valuation assumptions for sections 143 and 179 valuations which should result in reduced liability values
The PPF is consulting on adopting updated assumptions for valuations with an effective date on or after 1 April 2023 under sections 143 and 179 of the Pensions Act 2004. These valuations are used to determine if a PPF-eligible scheme has sufficient assets to secure benefits outside the PPF following a sponsoring employer’s insolvency (section 143 valuation) and to set and calculate the PPF levy (section 179). 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 consultation will close on 20 February 2023.
Changes include adoption of yield curve approach for section 143 valuations: The PPF is proposing several changes to the assumptions used to align them with current market pricing including the adoption of a yield curve approach for section 143 valuations instead of the current single rate approach.
This would mean having a rate that might change for each future time step rather than having the same one for each step (single rate). The PPF found that insurance companies prices are more competitive than the PPF, leading to lower liabilities which means that certain schemes could end up transferring to the PPF when they could have secured higher benefits on the open market.
A yield curve approach will not be used for section 179 valuations because the extra cost of compliance would be disproportionate and would be unlikely to result in a significantly different levy for many schemes.
Other changes include “increasing discount rates for certain types of benefits, moving to the latest mortality projections model, and amending the calculation of expenses. The combined impact for almost all schemes will be a reduction in the assessed value of scheme liabilities”.
PPF 7800 Index Report shows funding has increased
The latest PPF 7800 Index Report setting out the estimated funding position on a section 179 basis as at the end of December 2022 of the eligible 5,131 DB schemes shows that:
- the aggregate surplus of these schemes increased over the month to £376.7bn from a surplus of £371.5bn at the end of November 2022;
- total assets were £1,409.5bn and total liabilities were £1,032.8bn;
- the funding ratio increased from 133.7% at the end of November 2022 to 136.5% at the end of last month; and
- there were 686 schemes in deficit and 4,445 schemes in surplus.