Pensions Bulletin 2024/07

Private sector DB scheme provision – Regulator restates its statistics

The Pensions Regulator’s latest annual landscape report on DB and hybrid schemes (for 31 March 2023) has been published a little later than usual with an “enhanced methodology” of categorising schemes by status. This unfortunately casts doubt on much of the Regulator’s previous landscape reporting, sourced from scheme return data, all the way back to 2012.

The new “enhanced methodology” comprises an increase in the number of steps the Regulator takes to validate scheme status data taken from the scheme return. As a result, many of the figures quoted in previous reports now seem to be incorrect and have had to be restated. For example, last year’s report said that 50% of schemes were closed to future accrual, 37% closed to new members (but with accrual still occurring) and 9% open to new members. These have now been restated as being 70%, 22% and 4% respectively.

Moreover, the understatement of schemes closed to future accrual and overstatement of schemes closed to new members (but with accrual still occurring) seems to be a feature all the way back to the 31 March 2012 results (with the 28% closed to future accrual and 48% closed to new members figures back then now being restated as 41% and 37% respectively).

And as many of the statistics presented are built on scheme status they too have been revised.

Stepping back from this difficulty, the latest report illustrates once more the decline in DB and hybrid provision in the private sector. The 31 March 2023 results show 5,297 such schemes, down from 5,378 a year earlier. 72% of these schemes are now closed to future accrual, 20% closed to new members and only 4% open to new members. The remaining 4% are in the process of winding-up.

Unsurprisingly, scheme funding levels have improved since 2022 with the number of schemes funded at or above their technical provisions level increasing from 2,565 to 3,620. The total deficit of schemes in deficit has more than halved, reducing from £63.610 billion to £27.673 billion.

Around 683,000 individuals are now building up benefits in such schemes, down from around 741,000 a year ago (also restated). Deferred memberships also continue to fall – now standing at around 4,633,000 – whilst pensioner memberships have increased slightly to around 4,295,000.

By contrast, the public sector scheme membership continues to grow, with around 7,163,000 active members (up from 6,812,000), 6,007,000 deferred pensioners (up from 5,729,000) and 6,096,000 pensioners (up from 5,446,000).

Comment

The trends revealed by this latest survey are not a surprise, but what is coming through this year is that a scheme’s status on DB and hybrid scheme returns is not always reflective of the reality. Only by taking a deeper look at other data on the scheme return can the Regulator make a better stab at the scheme’s actual status, with over 1,500 private sector schemes in 2023 having their status changed as a result (compared with just over 200 last year).

Hopefully, the recast past statistics better reflect how the private sector DB landscape was actually changing over the last ten or so years and the enhanced methodology contributes to a much better basis for assessing the landscape going forward. However, the need to make these adjustments could be avoided if the data given on scheme returns was more accurate – and this year the Regulator is asking that trustees and administrators carefully review and update their scheme status to ensure it aligns with its scheme status definitions.

Regulation of dashboard service providers moves a step closer

Regulations that make operating a pensions dashboard service which connects to the MaPS dashboards digital architecture a regulated activity have been laid in final form, having been presented to Parliament in draft form last month.

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024 (SI 2024/169) come into force on 11 March 2024 and will enable the FCA to finalise its rules that will govern qualifying pensions dashboard services, on which it consulted in December 2022 (see Pensions Bulletin 2022/45) and on which the outcome is awaited.

Comment

There is no news from the FCA as to when it will publish its finalised rules, but presumably this is now imminent.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.

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