Pensions Bulletin 2021/53

Our viewpoint

PPF confirms 2022/23 levy proposals will proceed broadly as intended

The Pension Protection Fund has confirmed that it will go ahead with its proposals for the 2022/23 PPF levy as set out in its consultation document in September (see Pensions Bulletin 2021/40), but with one significant modification.

In a press release and statement published on 16 December, the PPF said that it was introducing, for 2022/23 only, a cap on schemes facing an increase in their risk-based levy of more than 25% compared to their 2021/22 risk-based levy.  This is to protect those employers experiencing a significant and adverse insolvency score movement, likely to be due to the pandemic, and has been made possible by the PPF’s currently strong financial position.  Although presented as an across the board measure the PPF reserves the right to disapply this cap (or apply it with a modification).  Four circumstances where this may happen are listed in Part C of the Determination rules, but others are possible.

As a result of this policy change and latest data (such as market movements and changes in insolvency scores to the end of October), the PPF estimates that it will now collect £390m, down from the £415m forecast in September.  The PPF notes that with the levy falling by £230m since 2020/21 it is considering its direction in the longer term as part of its funding strategy review and will engage with levy payers on this as part of next year’s consultation on the 2023/24 levy.  This is due to take place in autumn 2022 and the PPF expects these rules to incorporate the use of new asset classes as per its joint statement with the Pensions Regulator in October 2021 (see Pensions Bulletin 2021/45).  The PPF also anticipates reviewing the overall system of asset and liability stress factors and consulting on the outcomes of that review.


The introduction of the 25% risk-based levy increase cap is great news indeed, especially for employers who had to cease trading for a period because of the Covid lockdown, particularly impacting metrics such as "change in turnover" which was comparing a full year's activity with (in effect) a part year for many firms.  We also welcome this simple and considered solution that is clear and can be easily applied.

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CDC regulations laid before Parliament

The DWP has finalised two sets of regulations that fill in the necessary detail to enable certain employers to set up the UK’s first Collective Defined Contribution (CDC) schemes.  The main set of regulations, laid before Parliament on 16 December, are intended to come into force on 1 August 2022.  Regulations making necessary consequential and miscellaneous changes are expected to be laid in draft form in February 2022.

A number of changes have been made to both sets of regulations in response to the July consultation (see Pensions Bulletin 2021/30).  They are of a technical and clarifying nature, with little change to the policy intent.  The consultation response also includes some useful statements of intent.  Taken together, amongst the more noteworthy are the following:

  • There is no change to the design aspects that must be kept in separate sections of a CDC scheme (such as different accrual or contribution rates), but this will be looked at for future regulations
  • There will not be a “back stop” setting out the specific circumstances in which a CDC scheme must be wound up
  • There is confirmation that existing DB schemes cannot be re-categorised as CDC schemes (as only schemes established after the CDC provisions come into force can be characterised as CDC schemes)
  • £77,000 has been set as the maximum fee for authorisation

There are also adjustments, such as to the winding up provisions, intended to allow the Royal Mail scheme to be set up.

These regulations enable only single and connected employer schemes to be established, but the Pension Schemes Act 2021 contains powers to enable other scheme types to be set up – such as decumulation-only vehicles, commercial Master Trusts and industry-based multi-employer schemes.  The DWP intends to work with interested parties in relation to such schemes, but first it needs to learn from the experience of single and connected employer schemes, so no timescale has been intimated as to when DWP may legislate for these other scheme types.

The consultation response also confirms that authorisation and ongoing supervision will be administered by the Pensions Regulator which will produce detailed practical support for schemes through operational guidance and a Code of Practice.  The Regulator expects to consult on its draft Code in January 2022.


The relatively quick finalisation of these detailed regulations signals DWP’s intent to deliver, first for Royal Mail, and potentially other employers in its single and connected employer design.  We hope that the adjustments meet the Royal Mail’s requirements.  If they do, and with the Regulator consulting on its Code in January, the new regime may be up and running by 1 August 2022, with the first authorisation occurring around this time.

However, this is just the initial framework for CDC schemes and more needs to be done to make sure that the framework isn’t one that only works for Royal Mail.

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DB Funding Code further delayed

On 15 December, some 21 months after the first consultation was published (see Pensions Bulletin 2020/09), David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at the Pensions Regulator, announced in a blog that the next round of consultation from the Regulator, in which a draft of the DB Funding Code will be published, has been postponed until late summer 2022.  This is because the Regulator wants the draft code to benefit from the DWP’s consultation on draft regulations.  This in turn had been expected in the first half of 2021 but is now expected to be published in spring 2022.  It is not clear why there has been such a delay in DWP launching its consultation.

David Fairs also confirmed that, when introduced, the changes will be forward-looking so that only valuations with effective dates on or after the Code’s commencement date will be subject to the new regime.  There is no indication as to when the Code may come into force.

Consistent with the interim response published in January 2021 (see Pensions Bulletin 2021/03), David Fairs confirmed that the Regulator is considering how best to operate the bespoke route, in particular to ensure that trustees can measure and evidence that the risks they take under bespoke are supportable.  The Regulator is also considering how best to incorporate covenant into both fast track and bespoke to ensure it can be used in the most flexible way to justify risk-taking.


Before this announcement, our understanding was that the new funding regime was due to come into force for valuations with effective dates from 1 January 2023, although no such date had been formally stated.  Given the time required for the above consultations and parliamentary processes, it now may well be much later.  Until then the existing funding regime remains in place, although schemes with valuations in 2022 and possibly even in the first half of 2023 may wish to consider whether to adopt aspects of the proposed new regime.

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Climate risk – Pensions Regulator settles its trustee guidance

The Pensions Regulator has published the final version of its guidance for schemes subject to DWP’s legislation and statutory guidance on the governance and reporting of climate-related risks and opportunities.  It has also published the final version of its monetary penalties policy applicable where trustees fail to comply with aspects of this legislation.  This follows a consultation on both documents launched in July (see Pensions Bulletin 2021/28).

Regulator guidance

The final guidance is not markedly different to the draft consulted on.  As well as clarification on various points raised in the consultation, there are new and expanded examples indicating the Regulator’s expectations of trustees.

New examples have been included on qualitative scenario analysis and target selection while other examples have been expanded to be more informative.  Other changes include:

  • Additional emphasis on funding and covenant aspects
  • More detail regarding expectations about scenario analysis
  • An updated example climate risk dashboard, now accompanied by context wording which explains that the concept of the dashboard is more important than the specific detail
  • Clarification that target selection should reinforce risk management, be scheme specific, not be undertaken in a way that would breach trustees’ fiduciary duties, and a target should not be chosen arbitrarily

Trustees are expected to read the guidance in conjunction with the DWP’s statutory guidance, with the former not intended to impose any additional requirements.

Monetary penalties policy

The monetary penalties appendix is also similar to the consultation draft, with clarification in some areas and additional examples of the breaches which might fall into each penalty band.

Other pieces of the jigsaw still to be delivered by the Regulator are a review of its existing covenant guidance to incorporate more detail on what schemes should do to reflect climate-related risks and opportunities when assessing the strength of sponsor covenant and a step-by-step example which illustrates the entire process of implementing the new climate regime from start to finish.  Both are promised for next year.  The Regulator also plans to signpost examples of best practice TCFD reporting in the future.


This guidance will be of immediate interest to the 100 or so schemes already within scope of the new climate regime, although the main message is no major surprises.  For the approximately 250 schemes in the second wave (in scope from 1 October 2022), the guidance illustrates the types of actions they are expected to take over the next year or so, which some of them may find helpful.

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FCA finalises climate-related disclosure rules

The Financial Conduct Authority has finalised two sets of climate-related disclosure rules on which it consulted in June (see Pensions Bulletin 2021/26).  The final rules are similar to those on which it consulted, although some of the detailed provisions have changed.

Asset managers, life insurers, and FCA-regulated pension providers

All the above providers will be required to publish, annually, an entity-level TCFD report on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers.  They will also be required to produce, annually, a baseline set of consistent, comparable disclosures in respect of their products and portfolios, including a core set of metrics.

As proposed, these new rules are being phased in with the largest of firms (in terms of assets under management) being subject to them from 1 January 2022, with first disclosures required by 30 June 2023.  The second tier (for remaining firms with assets under management above £5bn) will be subject to the new rules from 1 January 2023, with first disclosures required by 30 June 2024.

A number of changes have been made to the draft rules as a result of the consultation.

Issuers of standard UK-listed equity shares

For accounting periods beginning on or after 1 January 2022, the above issuers will be required to include a statement in their annual financial report setting out whether they have made disclosures consistent with the TCFD’s recommendations and recommended disclosures – and if not, why, and what steps they are taking and over what timescale to make the disclosure.

The final rules are broadly as consulted on, but with a change to the scope of issuers that are subject to the new rules and the addition of a guidance provision on transition plan disclosures.

The FCA promises to respond to its discussion chapter on environmental, social and governance integration in capital markets in the first half of 2022.


This is another step forward in making available climate-related information to investors, including occupational pension scheme clients of asset managers and members of contract-based DC schemes.  The rules are particularly significant for large pension schemes seeking information on climate-related metrics to support their TCFD disclosures.

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Government responds to MPs recommendations on pensions and climate change

The Government’s response to Parliament’s Work and Pensions Committee’s inquiry on pensions stewardship and the COP26 climate change conference (see Pensions Bulletin 2021/41) has been published, suggesting that the Government is satisfied with the actions it is taking and is unlikely to do much more in response to the MPs’ recommendations.

Amongst the recommendations turned down by the Government are the following:

  • The Pensions Regulator to provide guidance to pension schemes on setting net zero targets
  • The Government to consult on whether there is a case for the default investment option, within DC schemes used for auto-enrolment, to align to UK Government climate goals
  • The DWP to publish, in its annual report, information about levels of direct investment in green infrastructure and other illiquid assets by pension schemes


Despite this, the Government’s response to the recommendations highlights the many actions it is taking or has recently taken in this area and provides some insight into ongoing strands of work.

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MPs to examine savings for later life

The Work and Pensions Committee has launched a call for evidence investigating what more needs to be done to help people plan and save for their retirement.

In this third and final part of the Committee’s inquiry into the impact of the pension freedoms and the protection of savers, MPs are to examine whether households have adequate pension savings for retirement and how the Government can improve outcomes for savers.  It will examine issues around auto-enrolment, retirement income targets and guidance and advice and also look into the support available for the self-employed and gig economy workers.  It will also look at possible measures to close the gender pensions gap.

The Committee published its findings of the first part of its inquiry (on pension scams) in March 2021 (see Pensions Bulletin 2021/14).  The findings of its second part (on accessing pension savings – see Pensions Bulletin 2021/08) are due to be published in the New Year.

The deadline for written evidence in relation to this third part is 2 February 2022.


This inquiry is likely to expose the many facets making up the pension savings challenge despite auto-enrolment significantly increasing the number of pension savers.  It may also help to crystallise Government thinking in a number of areas.  We look forward to hearing what the MPs will recommend.

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Scheme return season is around the corner

DB and hybrid schemes will soon have to complete their scheme returns and with that in mind the Pensions Regulator has provided some useful information.  In particular, there are some new questions for DB-only and hybrid schemes this year.  Those for both DB and hybrid are as follows:

  • The website addresses where the scheme’s statement of investment principles (SIP) and implementation statement have been published (only for schemes with more than 100 members)
  • The website address where the scheme's climate change report has been published (only for the very largest schemes)
  • The trustee assessment of the employer covenant grading (if available)

For hybrid schemes only the new questions are:

  • Information about the more detailed value for members (VFM) assessment (for those schemes required to do this)
  • The website address where extracts from the chair’s statement have been published (for those hybrid schemes providing separate money purchase benefits, or where any money purchase underpin potentially bites)

Scheme Return notices will be issued from the end of January and schemes will have until 31 March 2022 to complete and submit them.

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Christmas and New Year break

This is the last edition of the Pensions Bulletin for 2021.  It will return after the Christmas and New Year break.  May we wish readers a merry Christmas and a prosperous and healthy New Year!

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