DWP publishes updated occupational pension schemes regulations

DWP pension schemesThe Department of Work and Pensions (DWP) has published the final version of the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024 and a consultation response.

It has outlined what is required of defined benefit (DB) pension schemes in funding, investment strategy revisions are clearer on the flexibilities that were intended within the draft regulations, and has assured that the investment in the sustainable growth of sponsoring employers’ businesses is a matter to consider alongside the affordability principle.

Open schemes can now also take account of new entrants and future accrual when determining when the scheme will reach significant maturity, as well as making long-term planning and implementation easier to avoid unnecessary administrative burden by giving The Pensions Regulator the flexibility to ask for less detailed information in some cases.

The consultation, which was launched in July 2022, sought views on the draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023, as well as comments on proposals to amend the Occupational Pension Schemes (Scheme Funding) Regulations 2005 and the new requirement for DB schemes to appoint a chair.

John Dunn, head of pensions funding and transformation at PWC UK, said: “We are pleased to see that the government has listened to the pensions industry and has attempted to adjust the balance in these regulations towards allowing pension schemes to take risk and benefit from the reward where this is appropriate.

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“Whether some schemes will follow this path will depend not just on these regulations but on the incentives to take more risk and the additional safeguards available to protect members’ benefits. So the picture is not yet complete and we will need to see the government’s views, expected in the coming weeks in the form of a consultation, on these points before being able to assess how far the balance has really been tipped in favour of risk taking.”

Michael Aherne, partner at Herbert Smith Freehills, added: “While the focus on end game planning and low dependency remains, the government has made more explicit the flexibilities within the overarching funding regime and has given more certainty on points that had raised concerns. In particular, the following changes are likely to be well received by the industry in general: extending the effective date of the changes, so the new regime will now apply to valuations on and after 22 September 2024, and clarifying that the regulations do not constrain scheme investments and even mature schemes can invest in a wide range of assets.”