DB funding code

Under the new DB funding regime there are new concepts and requirements that all trustees and employers will need to be familiar with, which could have a significant impact on valuation outcomes in some cases: 

• All schemes will need to develop a formal “funding and investment strategy” – a formal journey plan that targets de-risking and full funding on a low-risk basis by the time a scheme is “significantly mature”. In most cases this requires agreement between trustees and employer. 
• Trustees will need to agree a “low dependency investment allocation” with the employer. This is a low-risk strategy assumed to apply from significant maturity.  
• Covenant analysis is more important than ever before, with new concepts such as covenant reliability and longevity influencing, and in some cases constraining, scheme valuations and journey plans.  
• Deficits must be repaired “as soon as the employer can reasonably afford”, taking account of the sustainable growth of the employer. 
• There are two routes for The Pensions Regulator (TPR) to assess valuations – Fast Track or Bespoke. Fast Track is a regulatory filter, under which if you pass various tests (eg relating to your technical provisions, or recovery plan length), you can expect limited scrutiny. Bespoke is an equally valid route but you must justify your approach. 
• There will be more paperwork for trustees and for advisers, including a range of new submissions by all schemes to TPR in a “Statement of Strategy”. 

Following improved funding levels over recent years, the impact of the new regime for many schemes will be less significant than anticipated when the code was first drafted. However, there are still actions that all schemes can, and should, be getting on with, especially those with valuation dates later in 2024. 

To help you prepare for the new requirements we have produced some key highlights documents, linked on the right of this page:

• Our action lists help trustees and sponsors to make sure they have all the bases covered, as well as understand what a valuation timeline in the new regime might look like.
• Our Fast Track summary sets out the key highlights of TPR’s tests to limit regulatory scrutiny.
• We have also produced a summary to help you prepare for the new covenant requirements.

If you’d like to learn more or would like a health check of how your scheme stacks up against the new DB funding code, please contact one of our experts below or your usual LCP adviser.