Pensions Bulletin 2026/43

This Pensions Bulletin covers our normal weekly round-up of regulatory and other developments. It has been issued ahead of the Chancellor’s 28 October 2026 Budget speech. A separate Budget Bulletin is being issued looking at Budget-related announcements which are of potential relevance to pension schemes and their members.

TPR warns trustees on hidden AI investment concentration risks

The Pensions Regulator (TPR) has published guidance setting out its expectations for trustees in identifying and managing investment concentration risks arising from the growing influence of artificial intelligence (AI) on global financial markets.

TPR is concerned that pension schemes may have greater exposure to AI-related risks than is immediately apparent, even where investments appear well diversified. This reflects not only the increasing importance of AI-related companies in major equity indices but also the financing of AI infrastructure and the growing dependence of companies across sectors on AI-related investment and adoption. 

The guidance references the Bank of England’s July 2026 Financial Stability Report which highlighted two linked concerns: that growing connections between sectors in the AI supply chain may require a reassessment of asset price correlations during stress, and that the range and varying transparency of AI funding arrangements may make it difficult to identify the full extent of exposure. Both of these may necessitate updated risk management approaches.

The guidance highlights particular risks associated with market capitalisation weighted passive investment strategies, where exposure to AI-related companies increases as their valuations rise. It also notes that investing through multiple actively managed funds may obscure correlations and repeat holdings because each manager only monitors its own concentration risk.

TPR expects trustees to:

• Assess their aggregate direct and indirect AI-related exposures across the whole portfolio.
• Use scenario analysis to test a severe but plausible market downturn in AI-related assets and compare these results with any existing stress tests. The assessment should consider resulting losses, liquidity demands and changes in correlation, including whether these remain within the scheme’s risk appetite.
• Review whether passive investments are becoming more concentrated and whether diversification would remain effective under stressed market conditions.
• Challenge advisers and managers on how market developments could affect a scheme’s investments and objectives, including challenging active managers on concentration, liquidity and leverage risk.
• Take proportionate action that reflects the scheme’s circumstances.

The guidance is relevant to both defined benefit (DB) and defined contribution (DC) schemes. For DC arrangements, TPR additionally emphasises the importance of having a proportionate communications plan that can be implemented quickly during a material market downturn, to help members avoid making short term decisions that could damage retirement outcomes. It is also worth noting that the guidance particularly mentions DC default funds when assessing AI-related exposures.

PPF extends zero levy for 2027/28 and updates valuation assumptions

The Pension Protection Fund (PPF) has announced that it will not charge a levy for conventional DB schemes (ie those with a substantive sponsoring employer) in 2027/28, the third consecutive year without a levy for these schemes. It will also pause the Alternative Covenant Scheme (ACS) levy for 2027/28.

The pause on the ACS levy will allow the PPF to review its methodology, taking account of market developments and the emerging regulatory framework. This affects arrangements such as DB superfunds, where member security relies on support other than a conventional sponsoring employer.

Alongside the announcement, the PPF confirmed that it will implement the changes it proposed to section 143 and section 179 valuation assumptions (see Pensions Bulletin 2026/30). These reflect more competitive bulk annuity pricing and are expected to reduce the estimated value of liabilities, although the impact will vary between schemes. For superfunds assessed by TPR, section 179 financial and mortality assumptions will be aligned with those in force for section 143 valuations at the time. This is intended to support a more accurate assessment of liabilities, relevant to both ACS levy calculations and the default wind-up trigger.

The revised section 143 assumptions take effect from 31 May 2026. Following consultation feedback, the section 179 changes will apply to valuations with effective dates on or after 30 November 2026, providing certainty for valuations already in progress. The PPF expects to issue further valuation guidance later this year which will specify when and how valuations should allow for pre-1997 indexation of PPF compensation; until then, valuations do not need to include such allowances.

FRC proposes changes to accumulation rates used in SMPIs

The Financial Reporting Council (FRC) is consulting on proposed changes to some of the investment growth assumptions used in statutory money purchase illustrations (SMPIs), following its annual review of its technical standard that governs projections of money purchase pensions. 

In its consultation paper on what will become version 5.3 of Actuarial Standard Technical Memorandum 1 (AS TM1) SMPIs, the FRC proposes:

• to increase the accumulation rate assumptions for investment volatility groups 1 and 2 by one percentage point, from 2% to 3% and from 4% to 5% respectively, reflecting the sustained higher level of long-dated real gilt yields over the year to 30 September 2026, and its implications for expected returns on lower-risk investments, as discussed in the FRC’s technical analysis paper;
• no changes to the accumulation rates for volatility groups 3 or 4 or to the boundaries between any of the volatility groups; 
• no change to any non-accumulation rate assumptions. 

Consultation closes on 27 November 2026, and the results of the consultation are expected by 15 February 2027. The FRC proposes that the new version 5.3 of AS TM1 will apply to SMPIs with an illustration date on or after 6 April 2027. 

The FRC is also carrying out a post implementation review of AS TM1 to ensure the standard continues to be fit for purpose. The wider review covers areas beyond the annual review and any resulting changes are not expected to take effect for at least two years. To support this review, the FRC will shortly publish a call for comprehensive feedback on the standard.