On 25 May 2024, the UK prime minister Rishi Sunak declared that the nation’s general election would take place on 4 July 2024, officially starting a pre-election period preventing central and local government from making any announcements about government initiatives.
A number of pensions reforms were, however, expected to be finalised this summer, had the election not been called – one being the defined benefit (DB) funding code, which was expected to be laid in parliament in June in order to give the necessary 40 days for the code to come into force on 22 September.
However, with the general election being called for 4 July, there is now not enough time for the code to be effective for the September date.
According to Matthew Arends, head of UK retirement policy at Aon, those schemes with valuations of 22 September will be mostly affected as they will have to start their valuations without having sight of the final parliamentary approved funding code, which he said is “not an ideal situation”.
However, he said that those schemes will have sight of the funding code at the same time as parliament does, so “they will know the intent and equally have 15 months to complete the evaluation”.
He said: “In the grand scheme of things, this is probably not going to change their process for the valuation overly much.”
However, Arends pointed out that it is not just the funding code the industry is waiting for, as the statement of strategy that The Pensions Regulator (TPR) is consulting on is still not published and neither is the guidance on the covenant assessment that forms part of the valuation process.
“Before the election was announced, it was expected that the funding code would be laid before parliament about now, and then the consultation on the new covenant guidance would follow after that. At some stage the final version of the statement of strategy was going to be released,” Arends said.
“I would hope now we will get all three of those things at the same time so that the schemes have the most time available to understand it all while they’re going through their evaluation processes,” he added.
More attention needed
But could the direction of travel for the funding code change if there is a change in government?
Arends pointed out that the Work and Pensions Committee, chaired by Labour mwmbwe of parliament (MP) Stephen Timms, has previously asked for a pause in the funding regime and asked for more attention to be given to open schemes.
He said: “There is a possibility that a Labour government if there is one, does put a pause on the implementation of the funding code while it works through those kinds of topics.
“My own view is that’s unlikely. My view is that these things are far enough progressed that the next government, whoever it is, just proceed with it in its current form.”
Colin Richardson, client director at Zedra, said one thing a new government could consider is changing the definition of significant maturity, which “could change quite a bit”. He said there might also be changes in how expenses are treated, but these are no big changes.
However, he said one issue could be if the new government decided that the funding code was not supporting the Mansion House agenda because the funding code implies that investors have to move towards a low risk investment strategy. This could change the funding code “substantially”.
But Richardson hopes the government will focus on defined contribution (DC) schemes when it comes to the growth agenda.
Laura McLaren, head of DB actuarial consulting at Hymans Robertson, said it will be “unhelpful” for trustees to have to rely on the regulations and draft guidance that was consulted on at the end of 2022.
“That would leave some important gaps. For example, we still don’t have the precise definition of ‘significant maturity’, the critical point by which schemes need to reach a low-dependency position. Nor do we have the final ‘Fast Track’ parameters,” she noted.
“The Regulator is also still to publish the response to its consultation on the statement of strategy – that new compliance will be the biggest change for schemes to factor into their valuation processes,” she added.
She said all the outstanding guidance is “crucial” to how the regulations will apply in practice and schemes with the earliest in-scope valuations really need the final details to be confirmed.
She acknowledged that most schemes won’t have to make major strategy changes, but urged that any more delays caused by a change in government risk stifling decision making and leaving them in an unhelpful ‘limbo’.
She explained: “For those more focussed on endgame planning, or getting ready for insurance, the regulatory uncertainty is a distraction. And any additional cost associated with needing to digest changes and comply in a compressed timescale will inevitably be unwelcome.
“We’d urge the Regulator to do what it can to publish the information schemes need to meaningfully prepare sooner rather than later.”
Tim Middleton, director of policy and external affairs at Pensions Management Institute, pointed out that Labour, which according to reports is the “likely election winner” went into this election campaign without an official pensions spokesperson.
He said: “It is unclear how this problem is likely to be resolved, but swift action on the part of the incoming government will be essential.”
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