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Pensions Bulletin 2022/36

Pensions & benefits Policy & regulation

Government concedes defeat on aspects of its Growth Plan as pension schemes adapt to a new environment

Little over a week on from when the new Chancellor delivered his Growth Plan (see Pensions Bulletin 2022/35) and the Government is backtracking as politics and markets challenge the dramatic shift in fiscal policy that the Plan heralded.

First to go was the abolition of the 45% additional rate of income tax, applicable to earnings above £150,000 – with the u-turn announced on 3 October. Then, the timing for the publication of the medium-term fiscal plan is to be brought forward from 23 November (to a date as yet unknown). Ahead of that, the Government will need to decide to what extent in-work benefits are to be uprated in line with inflation, as the Johnson administration had promised, but on which the Government is remaining silent.

For DB pension schemes, the focus since the 23 September ‘mini-budget’ has been very much on necessary immediate actions to support LDI allocations. This is now shifting to reviewing LDI approaches, including responding to new guidance and requirements from investment managers, to ensure investment strategies remain fit for purpose in the new yield environment. The next test could come on 14 October when the Bank of England has said it will withdraw from the temporary support to the gilt market it announced on 28 September.

Later on, DB schemes will need to take a step back and review their ultimate objective and journey plan. Many will find that they are much closer to their funding objectives than they had expected given the higher yield environment we are now in.

For DC schemes, additional member communications may be helpful, particularly where DC pots targeting annuity purchase have fallen in value, as LCP partner Stephen Budge explains.


Bond yields have been steadily rising throughout 2022, but the dramatic rises immediately following the Government’s mini-budget presented new challenges for pension schemes. The Bank of England’s intervention was welcome and helpful, giving some time for schemes to adjust to the new environment. Once gilt markets find a new equilibrium without the Bank’s support many schemes may find that they are in a stronger financial position and therefore better placed to deliver the promised benefits.

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PPF cuts levy again as first step in moving to a simpler and cheaper new structure

The Pension Protection Fund has published its draft 2023/24 levy Determination with good news for levy payers, as it looks to almost halve the amount of PPF levy it is collecting (from an expected £390m in 2022/23 to £200m in 2023/24). The likelihood of such a reduction was first made clear when the PPF published its annual report and accounts for the year ending 31 March 2022, revealing a strengthened financial position, and emerging conclusions from the PPF’s review of its long-term funding strategy (see Pensions Bulletin 2022/28).

Next year’s levy reduction is due to a combination of falling scheme risks and the PPF taking active steps to reduce and change the distribution in levies in line with its new long-term vision. General improvements in schemes’ funding positions and other changes in data contribute £70m of reduction. The remaining £120m reduction is due to the following active steps taken to reduce levies:

  • The levy rates associated with levy bands 2 to 10 have been reduced, with the band-to-band increase in levy rate halved (for example, a change from band 1 to band 10 will now see a 4 times increase in levy, instead of 14 times currently). This reflects the PPF’s aim to reduce the sensitivity of the levy to insolvency risk and contributes £60m of the reduction
  • The Levy Scaling Factor (LSF) and Scheme-based Levy Multiplier (SLM) have both been reduced (LSF is reduced from 0.48 to 0.37 and the SLM is reduced from 0.000021 to 0.000019). Together these changes account for the remaining £60m of reduction and will benefit all levy payers

The reclassification of assets required on the Scheme Return (see Pensions Bulletin 2021/45) is expected to go ahead as planned, introducing a 3-tier approach to submitting asset information. This information feeds into the PPF levy calculation but is actually in the control of the Pensions Regulator.

Schemes with section 179 liabilities in excess of £30m (Tiers 2 and 3) will be asked to provide a more granular asset breakdown, with the largest schemes (Tier 3, >£1.5bn) also needing to provide information on risk factor stresses (replacing the current bespoke stress analysis requirements). Schemes at lower tiers will have the option to “trade up” to higher tiers and supply more information if available.

The PPF proposes to update the asset and liability stress factors at the same time. In the main these updates are relatively small, with the most substantial changes being UK quoted equities where the factor is adjusted from -19% to -16%, and the inflation stress which would move from -14bps to -11bps. As a result of the asset reclassifications, there are new asset classes of Diversified Growth Funds (which receive a -10% stress factor) and Absolute Return Funds (that receive a -5% stress factor).

Other changes include:

  • The removal of the 2022/23 single-year adjustment, which capped risk-based levy increases to no more than 25% if this was because of employers seeing downgrades in insolvency risk scores
  • An adjustment to scorecard 6 (Group Small)

Looking ahead, the PPF’s Long-Term Strategy Review anticipates a world where levies can be reduced even further. The PPF is working with the DWP to free up the legislative restrictions around the levy (for instance, currently if the PPF wanted to charge no levy in a year, legislation would prevent a levy ever being charged again). It then intends to evolve the levy system to focus on a simpler, lower-level levy environment with less emphasis on employer insolvency risk. The PPF’s 2023/24 proposals are a step towards this goal.

Conversations will also take place with the DWP to agree an approach for what will be done with any excess funds the PPF has when the level of risk it is exposed to reduces sufficiently.

Consultation closes on 10 November 2022, and the final rules are expected to be published in December.


More good news for levy payers, building on that announced last September (see Pensions Bulletin 2021/40). However, as before, schemes now need to see what the proposals mean for their own levy calculation, which continues to be significantly influenced by their own insolvency scores, which will not be settled until 31 March 2023.

They also should consider what risk-reduction actions they can take to minimise the levy they will actually be called upon to pay. These could include putting in place a PPF-compliant contingent asset and, once we have more details on this, consider providing more asset information in the scheme return.

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Mergers and acquisitions – Pensions Regulator asks company directors to help DB trustees protect scheme members

In a blog published on 28 September 2022 and aimed at company directors, Mike Birch, Director of Supervision at the Pensions Regulator, sets out some expectations that the Regulator has of DB scheme sponsors in the context of mergers and acquisitions and distressed situations of which the Regulator has seen a recent increase.

After pointing to the role that the Regulator expects of DB scheme trustees, as set out in its guidance “Protecting schemes from sponsoring employer distress”, first published in November 2020 (see Pensions Bulletin 2020/47), the blog makes clear that schemes need to be treated fairly and be communicated with as a primary creditor when structuring any acquisition or financing package. Employers should also take account of members when negotiating corporate transactions involving pension schemes and “ensure they are robustly protected”.

The blog state that employers should immediately alert trustees about a proposed corporate transaction. It also states that trustees will be subject to strict confidentiality provisions and so employers should not use market sensitivity and regulatory notification provisions as an excuse to keep trustees in the dark. It then goes on to spell out what the Regulator thinks constitutes equitable treatment for schemes in practice. This includes:

  • Granting trustees direct and early access to bidders and their advisers at the earliest opportunity
  • Bidders having a clear, credible and well thought out business plan which considers the scheme’s long-term funding objective, backed up with robust corporate governance and underpinned by suitable protections for the scheme
  • A legally binding agreement to be reached with the trustees ahead of completion, and strong governance protections to be put in place which ensure the independence of the trustee board including adequately removing or mitigating conflicts of interests
  • Bidders should not move the goalposts – the Regulator does not expect that an acceptable arrangement is agreed on day one only to be changes to a less than robust plan on day 2 which is more favourable to the “new” company and its revised board

The blog concludes by saying that employers and bidders in M&A scenarios are equally responsible for protecting pension savers as the trustees – they must all work together on equal terms to ensure the best possible outcome is reached.


There is nothing particularly new in this blog, but it is a useful statement of the Regulator’s expectations in merger and acquisition situations. However, it must be frustrating for the Regulator to have to resort to blogs to set out its expectations in this area, whilst waiting for the DWP to finalise new regulations on the notification of significant corporate events (see Pensions Bulletin 2021/37). Only then will the Pensions Regulator be able to formalise its expectations.

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Pensions Regulator updates its climate risk trustee guidance

The Pensions Regulator has updated its guidance on the climate-related disclosure requirements for those schemes subject to the DWP’s legislation and statutory guidance on the governance and reporting of climate-related risks and opportunities. The update is mainly to reference the changes to the DWP’s regulations, which came into force on 1 October 2022 (see Pensions Bulletin 2022/26), and which introduce a requirement for affected trustees to calculate and report on a portfolio alignment metric for any scheme year ending on or after 1 October 2022.

Announcing the update, the Regulator points to the importance of undertaking the latest addition to this work, as part of the need for trustees to protect scheme members’ pensions from the material financial risks that climate change poses, and to take advantage of opportunities from a global pivot towards low carbon economies.

The guidance was first issued in December 2021 (see Pensions Bulletin 2021/53). The only change of substance relates to the changes in the metrics requirements. As in the rest of the guidance, the Regulator simply paraphrases the DWP regulations and statutory guidance and gives some examples of what schemes might do in practice.

The Regulator also notes the phased introduction of the original DWP regulations, pointing to the fact that from 1 October 2022 the rules will also apply to trustees of schemes with net relevant assets of £1 billion or more (as measured on the first scheme year end date which falls on or after 1 March 2021).


We welcome the inclusion of the portfolio alignment metric as this will help trustees to better understand the climate impact of their activities.

Now that the second wave of schemes are in scope of the climate governance and reporting requirements a wide range of activity will be required and this will be new activity in most cases for such schemes.

We hope that the Regulator will take the same benign approach to helping the £1bn + schemes comply as they did with the £5bn + first wave. We understand that the Regulator is analysing reports from the first wave and hopes to provide some pointers on where things have been done well and where there is room for improvement.

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MPs say more needs to be done to support pension savings

Parliament’s Work and Pensions Committee’s investigation into what needs to be done to help people plan and save for their retirement has reached a conclusion with the publication of a lengthy report containing a number of suggestions for action by Government.

Launched in December 2021 (see Pensions Bulletin 2021/53), having taken extensive evidence, the MPs’ inquiry has produced suggestions that are driven by a concern that many people are making insufficient savings for later life and the need for Government action to facilitate a step change in retirement savings.

The suggestions include establishing what an adequate income in retirement should look like, implementing the long-delayed recommendations of the 2017 auto-enrolment review, work towards increasing the auto-enrolment minimum contribution rate, seek to default the self-employed into pension saving, increase legal protections for people in low-paid work and the gig economy, take various actions to reduce the gender pensions gap, and improve the take up of pensions guidance.

There is also a suggestion to set up a new office tasked with building and maintaining an evidence base, explaining the trade-offs involved in different policies and reporting regularly to Parliament on progress in meeting objectives relating to retirement adequacy and the gender pension gap.


The report contains many sensible suggestions, but it is not clear whether the Government will warm to many of them. Hopefully, we will find out within the next few weeks.

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Trustee oversight of investment consultants and fiduciary managers – the sun sets on the CMA’s remedies

The Competition and Markets Authority has announced that those aspects of its 2019 Order relating to trustee oversight of investment consultants and fiduciary managers ceased to be in force on 1 October 2022. This is a result of the DWP bringing into force equivalent provisions on that date (see Pensions Bulletin 2022/22).


With this aspect of the Order ceasing to apply, it seems that the next round of trustee reporting to the CMA due by 7 January 2023 no longer applies. The regulations in turn expand the information that must be supplied to the Pensions Regulator to capture aspects in relation to investment consultants and fiduciary managers, but there is no news yet on when the Regulator will want it to be supplied. Presumably it will be through an expanded scheme return requirement.

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