The DWP consultation on the draft funding and investment regulations

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The long awaited DWP consultation on the draft funding and investment strategy regulations (the Regulations) has been launched. The consultation closes at the end of 17 October 2022.

The Regulations provide the detail of the new Pensions Act 2004 (the 2004 Act) provisions that will require a defined benefit occupational pension scheme to:

  • have a funding and investment strategy (FI Strategy) "for ensuring that … benefits can be provided over the long term" under which it will need to have, at least, low dependency on the sponsoring employer with high resilience to investment risk by the time it is significantly mature; and
  • to outline the FI Strategy in a statement of strategy (the Statement) signed by the chair which must be sent to the Pensions Regulator along with the valuation (which will need to be sent whether the scheme is in deficit or not).

The Regulations will be supplemented by the Pensions Regulator's revised DB funding code of practice (the Funding Code) which will provide further detail on the key concepts set within a new twin-track compliance regime (fast track and bespoke).


The Regulations

It is not yet known exactly when the Regulations will come into force – they refer to a 2023 date. We expect this will probably be later in the year to tie in with the September 2023 date from which the Funding Code is expected to be in force.

The FI Strategy

The first FI Strategy must be produced no later than 15 months after the effective date of the first actuarial valuation after the Regulations come into force. Following this, a FI Strategy will need to be completed within 15 months of the effective date of a valuation and, as soon as reasonably practicable, after material changes in either scheme or employer circumstances.

The Statement

The Statement needs to be provided to the Regulator with the valuation – the exact process will be detailed in the Funding Code.

Purpose of the FI Strategy and Statement changes

The Government's purpose behind the new provisions is to clarify and improve funding standards and to improve the Regulator's ability to be able to intercede where appropriate.

Although, many schemes now have a long-term objective (LTO), the Regulations' impact assessment notes that a 'sizeable minority' do not, and, for some that do, the LTO may be 'largely aspirational'. Some schemes have a 'short-term' outlook on funding with an ineffective investment strategy. The Government believes that the changes are needed to remedy this.

What will the changes mean for DB schemes?

The Regulations (and the Funding Code) will significantly change how schemes manage funding. Following the changes there will be a time limit within which schemes should be fully funded on a low dependency basis – schemes will need to progressively de-risk (if they are not already doing so) to reach this level in accordance with deadlines set by the Regulator.

The concept of having sustainable funding and investment risks, already a requirement of effective integrated risk management, is to be embedded in legislation for the first time as is a definition of employer covenant strength.

The new requirements may well result in certain schemes needing to bring forward and increase employer contributions where the LTO is not equivalent to the FI Strategy requirements of low dependence at significant maturity. The impact for some may be marked – employers with weak covenants may find de-risking difficult and those which are strong could find they need to provide additional funding to remove the deficit sooner.

The FI Strategy

The overarching principle of the FI Strategy is that schemes will have reached "at least, a state of low dependency on their sponsoring employer by the time they are significantly mature".

Scheme maturity

Maturity in the Regulations is measured by reference to 'how far a scheme is through its lifetime' in years, using a specified duration of liabilities measure which has been formulated following DWP stakeholder engagement, is well recognised within the pensions community and which will be further detailed in the Funding Code. It is defined as the "weighted mean time until the payment of …[scheme benefits], weighted by the discounted payments."

In the first consultation to the Funding Code significant maturity was set as reaching a duration of liabilities of 12 to 14 years and, following DWP informal consultation, it is understood that the second consultation will cut this to 12 years.

The scheme actuary will estimate the date that the scheme will reach significant maturity at each valuation.

Low dependency needed in both investment and funding

Low dependency at significant maturity: means having both a low dependency investment allocation and being fully funded on a low dependency basis.

Investment low dependency: means having investment cash flow matching benefit payments with assets relative to liabilities being "highly resilient to short-term adverse changes in market conditions". The objective is to remove reliance from any future need for employer contributions.

Being fully funded: means having an asset to liability ratio of 1:1 on actuarial assumptions which align with low dependency on the employer, chosen on the assumption that no further employer contributions will be needed under 'reasonably, foreseeable circumstances'.

There is no reference to 'self-sufficiency' because, as the consultation notes, this cannot be 'guaranteed’, and the employer could end up having to provide further funding depending on what 'unexpected circumstances' arise.

Strength of the employer covenant

Employer covenant strength is defined in the Regulations. It is the employer's financial ability to support the scheme plus any support that can be provided by legally enforceable contingent assets that "will be sufficient to provide that support at such time as…required". Strength must be considered in connection with the scheme's deficit or surplus. In assessing financial ability certain matters must be taken into account including insolvency likelihood, cash flow and other factors which may impact business performance or development.

Relevant date

The FI Strategy must set out both the intended funding level of the scheme and investments that it is intended will be held at the relevant date. This must be no later than the end of the scheme year in which the scheme is expected to (or did) reach significant maturity. The relevant date will be set out in each valuation – each time the FI Strategy is reviewed the relevant date must be adjusted if "necessary or appropriate".


The Government sees compliance with the Regulations as falling within the following order: (1) determine the date of significant maturity after taking actuarial advice; (2) choose the relevant date; and (3) then determine the low dependency asset allocation the scheme is intended to have achieved by the relevant date and the low dependency funding basis.

Matters to be considered and principles to be followed

The following matters must be taken into account and principles followed when producing a FIS:

  • Matters that must be taken into account: the actuary's estimate of the significant maturity date and the maturity of the scheme at the effective date of the respective valuation.
  • Principles to be followed:
    • Principle 1: Full funding and low dependency investment allocation on and after the relevant date;
    • Principles 2 & 3: Investment risk and calculation of liabilities risk on the journey plan (the time between 'now' and the relevant date) are dependent on covenant strength and how far away significant maturity is – the stronger the covenant and the longer away the relevant date is the more risk that can be taken; and
    • Principle 4: scheme assets must be invested so that there is sufficient liquidity to meet expected cash flow needs with reasonable allowance for unexpected needs.

Employer agreement

Employer agreement will be required to the FI Strategy as set out in the Statement. This raises questions as regards the potential impact on trustees' investment powers and is likely to feature in responses to the consultation.

Open schemes

The Regulations are designed to allow open schemes to account for maturity considerations and to take appropriate investment risks whilst still making sure that the risks associated with providing benefits over the long term are managed.

The Statement


The Statement must include a written statement of the FI Strategy (Part 1) and the following supplementary matters (Part 2).


Whether the FI Strategy is being 'successfully implemented' – if not, what remedial action is intended to keep the FI Strategy on track with timing information.


The main risks for the scheme in implementation of the FI Strategy and how these will be mitigated or managed.

Significant decisions

"reflections…on any significant decisions taken…in the past…relevant to the [FI Strategy] (including any lessons learned)…"

Other supplementary matters including:

  • Actuary's estimate of the scheme's maturity at the effective date of the valuation and, for a scheme that has not reached its relevant date, how maturity is expected to change over time.
  • Intended level of risk over the journey plan.
  • The actuary's estimate of the funding level and technical provisions.
  • Employer covenant assessment.
  • How the FI Strategy remains appropriate.

The employer must be consulted with when preparing or revising Part 2 of the Statement. The Statement must contain confirmation of this.

Part 2 of the Statement must be reviewed and, if need be, revised as soon as reasonably practicable following a FI Strategy review (whether or not the FI Strategy is revised).

Requirement for a chair

New provisions in the 2004 Act require a chair of trustees to sign off the Statement, so one must be appointed where there is no current chair in accordance with certain requirements.

Scheme Funding Regulation changes

There are proposed changes to the Scheme Funding Regulations that will require:

  • technical provisions: to be calculated "consistent with" the FIS Strategy;
  • valuation: the funding level on a low dependency funding basis to be included in the valuation; and
  • recovery plan: trustees to follow the principle that the deficit "must be recovered as soon as the employer can reasonably afford" when assessing recovery plan appropriateness – this is a new factor, and the consultation asks if it should have priority over other current matters.

Next steps

The Regulations provide a welcome outline of the new long-term funding requirements. However, there is still some way to go as much of the finer detail (and all of the Fast Track and Bespoke arrangements) has been left to the Funding Code. There are also still some uncertainties around what might happen for those schemes that do not meet the requirements. The first Funding Code consultation does include some information on the Regulator's initial thoughts on its engagement and enforcement approach  but we will have to wait for the second consultation due to be published this Autumn for more detail on this.

Overall, the new requirements may have limited impact on those schemes that are already funding in line with a low dependency target at significant maturity but there may be changes ahead for those that either do not or cannot, both in terms of additional funding and/ or time and flexibility constrictions.


Trustees and employers will need to familiarise themselves with the Regulations and developments on the Funding Code and understand how these will impact their scheme. There will need to be particular attention on the long-term horizon and covenant strength. Until the Regulations and the Funding Code are in place funding valuations will need to be agreed with the new requirements in mind.

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