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New UK Defined Benefit Pension Schemes Funding Regime: What Corporate Sponsors and Trustees Need to Know
New UK Defined Benefit Pension Schemes Funding Regime: What Corporate Sponsors and Trustees Need to Know
19 December 2024
Series
Blogs
19 December 2024
The landscape for funding UK Defined Benefit (DB) pension schemes changed significantly earlier this year, following a long-running review by the Government and the Pensions Regulator. The new regime introduces several new requirements that will impact both corporate sponsors and trustees of these schemes. Here, we look at the three key features of the new regime.
Further details on these changes and the Regulator’s code of practice are set out in our recent Trustee Agenda publication.
A central element of the new regime is the requirement for trustees to formalise a plan to reach low dependency on the sponsor by the time the scheme is significantly mature. This long-term objective requires trustees to calculate liabilities on the assumption that, if the scheme is fully funded on that basis and the assets are invested in accordance with a “low dependency investment allocation”, no further employer contributions should be needed.
The new regime also formalises an assessment of the employer covenant supporting the scheme. For the first time, "employer covenant" is defined, with a prescribed framework for assessment.
The Regulator has recently published further detailed guidance on the approach it expects trustees to take when considering the strength of employers.
The new regime imposes more robust governance requirements, impacting both sponsors and trustees.
The new funding regime for UK DB pension schemes represents a shift in regulatory expectations and responsibilities for both corporate sponsors and trustees. By focusing on formalising long-term objectives, assessing employer financial support, and enhancing governance frameworks, the new regime seeks to further ensure sustainable funding and robust management of DB schemes.