Contents

• Recent market disruption
• New funding and investment strategy (FIS) requirement for DB schemes
• Challenge to reform of RPI rejected
• Other news

Recent market disruption

The past fortnight has demonstrated how pension schemes can be significantly impacted by unexpected turmoil in financial markets.  Many defined benefit (DB) schemes with hedged liabilities (including as part of a liability driven investment (LDI) strategy) faced calls to post collateral in response to the rapid increase in gilt yields, giving rise to liquidity difficulties for some.

After dealing with the initial shock to investments and managing short-term liquidity needs, what can trustees do to ensure that they are well prepared to respond to any future disruption? 

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New funding and investment strategy (FIS) requirement for DB schemes

Consultation on draft funding and investment strategy regulations closes on 17 October.  If enacted in their current form, the regulations will represent a significant tightening of government expectations for defined benefit (DB) scheme funding. 

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Challenge to reform of RPI rejected

The High Court has rejected a challenge by trustees of three large pension schemes to the reform of the Retail Prices Index (RPI).  The government confirmed in November 2022 that it intends to align the RPI with the Consumer Prices Index including Housing (CPIH) from 2030. 

The reform will create winners and losers: pension schemes (and other investors) holding index-linked gilts or other RPI-linked assets could see falls in asset values and deterioration of scheme funding.  In contrast, schemes with RPI-linked benefits could see the value of liabilities fall (and scheme funding levels improve). 

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Other news

• On 12 October, the Pensions Regulator (TPR) issued a statement for pension trustees on managing investment and liquidity risk in the current economic climate. 
• The DWP is consulting on draft regulations to broaden the investment opportunities available to defined contribution (DC) pension schemes.  This follows on from the statement in the Chancellor’s Growth Plan on 23 September that changes to the pension charges cap would give DC schemes “the clarity and flexibility to invest in the UK’s most innovative businesses and productive assets creating opportunities to deliver higher returns for savers”.
• In a recent blog, the Pensions Regulator (TPR) set out its expectations of trustees, employers and bidders in relation to M&A activity involving a sponsoring of a defined benefit (DB) pension scheme.  TPR expects the pension trustees to be given direct access to the bidder and its advisers at the earliest opportunity in the transaction process.
• TPR has warned employers to ensure they are complying with auto-enrolment obligations, following inspections of more than 20 large employers which uncovered common errors in respect of calculating pension contributions and communicating with staff. 
• An “IOU” to contribute a specified amount to a registered pension scheme was held not to be a “contribution paid” and was not eligible for tax relief.  For this purpose, a “contribution paid” was restricted to contributions of money (in cash or other forms).  See the First-tier Tribunal decision in Mattioli Woods PLC v HMRC.
• The Pension Administration Standards Association (PASA) has issued updated guidance on Exit Agreements, intended to address concerns around the smooth transfer of administration services from one administrator to another.  
• In relation to recouping overpayments by deduction from members’ future pension instalments, the High Court has held that the Pensions Ombudsman is not a “competent court” for the purposes of section 91 Pensions Act 1995.  Where the member disputes the amount owed, or the amount of the proposed deductions from each pension payment, the trustees may only proceed with the recoupment if they obtain an order of a “competent court” – which, in practice, means the County Court in England and Wales.

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