Pensions Bulletin 2023/14

Our viewpoint

No change to State Pension Age this side of the General Election

The Government’s review of State Pension Age has been published alongside two reports that have informed the Government’s conclusions, namely one report by the Government Actuary and the other by Baroness Neville-Rolfe.

In the Government’s review, the conclusion is that the legislated for rise from 66 to 67 will take place as planned between 2026-28, and there is to be no change for now to the rise from 67 to 68.  The increase to 68 had been legislated to take place between 2044-46 a number of years ago, but was, as result of the 2017 State Pension Age review, to be brought forward to take place between 2037-39.

The decision not to bring forward the increase to 68 would appear to be as a result of the rate of life expectancy improvement slowing since the 2017 review, resulting in a fall in projected life expectancy compared to that which underlay the recommendations contained in the 2017 review.

However, a further review will take place within two years of the next General Election to reassess the increase to 68.  This review will take into account “the long-term impact of recent significant external challenges, including the COVID-19 pandemic and recent global inflationary pressures”.  All options for a rise to 68 will be in scope of this review, so long as 10 years’ notice is given, suggesting that the earliest that this transition will take place is around 2037.

The independent report by Baroness Neville-Rolfe concluded that it remains right for there to be a fixed proportion of adult life people should expect to spend, on average, in receipt of State Pension.  She suggested that this proportion should be set at ‘up to 31%’ of adult life.  Using the latest life expectancy projections, she found that the increase to 67 between 2026-28 was consistent with this metric, but the increase to 68 should be pushed back to 2041-43 from the 2037-39 figure recommended in the 2017 review.

Currently, there are no plans for a further increase to State Pension Age.  However, Baroness Neville Rolfe suggested that the Government should also set a limit on State Pension-related expenditure of up to 6% of GDP.  If this were accepted, she says that an increase to 69 would need to take place between 2046-48.  Although she does not go on to explore what further increases might take place under this 6% rule, it seems plausible that an increase to 70 and beyond could take place under it.


There have been a number of stories circulating that the Government was going to bring forward the point at which State Pension Age rose to 68, but the statistics are against this, as is where we are in the political cycle.  The Government acknowledges that it has, in effect, deferred its decision for now.  It is quite possible that in a few years’ time, the statistics will still be against bringing forward the rise, but other metrics may come into play and politically it may be easier to deliver.

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Bank of England recommends Regulator sets LDI steady-state minimum resilience

Following on from the extraordinary volatility in the gilt market in September and October last year, the Bank of England’s Financial Policy Committee (FPC) has recommended that the Pensions Regulator “take action as soon as possible to mitigate financial stability risks by specifying the [steady-state] minimum levels of resilience for the LDI funds and LDI mandates in which [DB] pension scheme trustees may invest”.  This follows on from the FPC’s interim recommendation that the Pensions Regulator, in co-ordination with the Financial Conduct Authority and overseas regulators, ensure LDI funds remained resilient to the level of interest rates they could withstand at that point – and on which the Regulator issued guidance in December 2022 (see Pensions Bulletin 2022/44).

In its latest recommendation, the FPC says that the yield shock to which LDI funds should be resilient should be, at a minimum, around 250 basis points.  However, funds will need to maintain additional resilience above this minimum in order to manage day-to-day volatility in yields and account for other risks they might face, including operational risks.

The FPC also recommends in its March Financial Policy Summary and Record that, in order to better allow the Regulator to implement and enforce guidance on LDI resilience in the long term, it should have the remit to take into account financial stability considerations on a continuing basis.  This might be achieved by adding a requirement to have regard to financial stability to the Regulator’s statutory objectives.


The Pensions Regulator has yet to respond publicly to this development, but we understand that it will issue trustee guidance in April reflecting this recommendation.

In our view, the approach taken by the Bank of England is one of pragmatism and flexibility.  We expect it is likely to have limited impact on the approaches many schemes currently adopt.  Of course, some regulatory risk and uncertainty will remain, but we expect the recommendations provided by the Bank will help reduce these uncertainties.

The LDI issue has exposed a gap in regulatory responsibility for the resilience of LDI funds and mandates – this does not currently sit clearly with either the Bank, the Pensions Regulator, or the FCA.  This is an issue on which the Government will need to reflect, quite possibly after receiving the forthcoming LDI report by the Work and Pensions Select Committee (see Pensions Bulletin 2022/39).

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Scheme funding – further delay to the new regime

The Pensions Minister, Laura Trott, has made clear that the scheme funding regulations, on which consultation closed last October (see Pensions Bulletin 2022/38), will need to take into account the recommendations of the House of Commons’ Work and Pensions Select Committee and the House of Lords’ Industry and Regulators Committee in their investigations into LDI following the market disruption last year.  The Lords’ Committee has already reported, but it is not clear when the Commons’ Committee will report.


We understand that due to this and other factors it is now very unlikely that all the necessary materials will be finalised in time for the new scheme funding regime to start this October.  April 2024 now seems to be the target.

Although some may be concerned with this further delay, there is no need to rush to get the new regime finalised.  Far better for the Pensions Regulator and the DWP to take the necessary time to be able to produce a new regime that is practical and proportionate and whose components are consistent with one other.

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PPF updates its valuation assumptions

The Pension Protection Fund has decided to go ahead with the changes it proposed in January 2023 to the assumptions it uses for PPF entry and levy valuations (see Pensions Bulletin 2023/01).  However, the new assumptions will now operate for valuations with effective dates on or after 1 May 2023, because the proposed 1 April 2023 date would have resulted in valuations with the very common effective dates of 31 March and 5 April operating on different assumptions.

The changes include adopting a yield curve approach for entry valuations, which was strongly supported by those who responded to the consultation.

The updated assumptions guidance documents are now available on the valuation guidance section of the PPF’s website – namely version B10 for PPF entry (section 143) valuations and version A11 for PPF levy (section 179) valuations.  Entry-like valuations carried out under sections 152, 156 and 158 of the Pensions Act 2004 will also be affected.

The PPF will continue to monitor insurance pricing monthly and complete a formal review of the bases at least every six months by discussing them with insurers.  The volatility assumption used to model the pension increase will also be monitored and updated from time to time.


The new assumptions should bring the PPF bases more in line with insurer pricing and for entry valuations reduce the likelihood of schemes being accepted for entry when they could in fact get a better deal in the buyout market.

The PPF had a good level of response to this consultation and has been given a number of suggestions to mull over, including from LCP, but has decided to go ahead with its own proposals at this point.

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Actuaries decide to take into account adverse 2022 mortality in forthcoming mortality projection model

The Continuous Mortality Investigation Bureau (CMIB) of the Institute and Faculty of Actuaries is to go ahead with its projection proposals on which it consulted earlier this year (see Pensions Bulletin 2023/05) – in particular, its proposed 25% weighting of 2022 mortality data in the forthcoming CMI_2022 projection model.  Respondents were broadly supportive of the proposals and they are to be implemented without any changes.

The CMIB intends to increase the weights used for mortality data in subsequent years and will set out an indicative plan for weights in future years to assist with sensitivity analyses but will only confirm the final weights closer to the release of each new version of the model.


Life expectancy assumptions will now fall by round six months when adopting the new core model, all else being equal, as LCP partner, Chris Tavener explains.

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SCAPE discount rate methodology to continue

The Government has decided to continue to use its existing methodology to set the discount rate for the valuation of unfunded public service pension schemes, following a consultation launched in June 2021 (see Pensions Bulletin 2021/27).  This SCAPE (superannuation contributions adjusted for past experience) discount rate, based on expected long-term GDP growth, will be applied to valuations as at 31 March 2020 and will result in new employer contribution rates which will be implemented from April 2024.

In its response to the consultation, the Government says that the existing methodology best meets the balance of the Government’s objectives for the SCAPE discount rate.

The updated rate will generally lead to higher employer contribution rates for most unfunded public service pension schemes resulting from the 2020 valuations, as the discount rate will reduce from inflation plus 2.4% pa to inflation plus 1.7% pa.


Whilst the Government has committed to providing some additional funding for public sector bodies as a result of a decrease in the SCAPE discount rate, private sector employers who participate in these unfunded public sector schemes may have to pick up the additional costs.  LCP Partners Richard Soldan and Luke Hothersall note in particular, the likely impact on independent schools that use the Teachers’ Pension Scheme.

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Government updates its Green finance strategy

The Government has updated its Green finance strategy that was launched in July 2019 (see Pensions Bulletin 2019/27).  The update, in the form of a lengthy paper with accompanying appendices, goes under the heading of “Mobilising Green Investment” .  The Government’s strategy for greening UK finance set out in this document is strongly focussed on encouraging private sector financing of the climate transition.

In a joint statement, the FCA, FRC, Bank of England and Pensions Regulator have welcomed this update, with Charles Counsell for the Regulator saying that “it is crucial that trustees effectively manage material climate-related risks and opportunities” for their members and that the Regulator will keep its focus on tackling poor standards of governance and risk management in pensions.

On pensions itself, the update says remarkably little that is not known already.  For example, it mentions the removal of performance fees from the DC charge cap, that completes this month (see article further below), and the Long-term Investment for Technology and Science (LIFTS) initiative, which was announced in the March 2023 Budget.  However, we now have a time (autumn 2023) for the consultation on UK green taxonomy and the review of the regulatory framework for effective stewardship, including the operation of the Stewardship Code, will now take place in Q4 2023.  In addition, in late 2023 the DWP will examine the extent to which its Stewardship Guidance is being followed and the Government will engage with interested stakeholders on how it can continue to clarify trustees’ fiduciary duty.


While demonstrating the Government’s commitment to green finance as a central plank of its climate strategy and of interest to those concerned with responsible investment, this update contains little substantive in the way of new initiatives directly impacting pension schemes.

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FCA provides update on its sustainability disclosure requirements

The Financial Conduct Authority is to take a little longer than intended to finalise the proposals set out in its consultation paper issued last October (see Pensions Bulletin 2022/39).  In an update posted on 29 March 2023, the FCA says that it now intends to issue a Policy Statement in Q3 this year and the proposed effective dates of various requirements will be adjusted accordingly.

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PRAG sets out some thoughts on the LDI crisis impact on financial reporting

The Pensions Research Accountants Group (PRAG) has set out some initial thoughts on the impact that last autumn’s gilt yield crisis may have on the annual reports and accounts of UK pension schemes.  Naturally, the focus is on DB schemes.

PRAG suggests that where the gilt yield crisis had a significant effect, the trustees’ report should contain commentary about the background that caused the event, how the trustees addressed the issues and the overall impact on the scheme.  There may also need to be comment in the Financial Statements on a number of matters, which PRAG goes on to list.  Finally, PRAG sets out a number of areas that trustees may wish to include in the investment section of the report.

Noting that DC schemes were not immune from the market movements, losses in lifestyle default funds may require communication to members, especially those close to retirement.

PRAG concludes by noting that the gilt crisis may bring a spotlight on collateral management, with such a change in focus potentially covered in the investment section of the trustees’ report, supported by risk disclosures and, for segregated mandates, the collateral disclosures in the notes to the financial statement.

PRAG’s paper is available from its website to members.


This is not guidance, but rather some thoughts for discussion.  However, what is clear is that as we move into the reporting season, there is an expectation from pension accountants that a scheme’s trustees’ annual report and accounts provides a good account of what happened, its consequences and any change in trustees’ approach as a result.

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PASA issues further guidance on pensions dashboards

The Pensions Administration Standards Association has published two new sets of pensions dashboard guidance aimed at administrators.  The first is entitled “What administrators, providers and service centres should say to savers who enquire about dashboards before they become universally acceptable” and the second is by way of an addendum to PASA’s data matching convention guidance last updated in August 2022.  This addendum sets out guidance on matching without an NI number and guidance on possible match responses.  Guidance on two other matching topics is also promised.


Matching protocols are going to be vital to the success of pensions dashboards, and as this is being largely left to schemes to decide, this PASA guidance should help to build a consensus across occupational pension schemes.

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Clearing exemption to be extended

HM Treasury has announced, by way of new guidance, that the exemption for pension funds from an EU-originated clearing obligation, will be further extended.  This exemption, that had been set out in UK regulations in 2019, as a consequence of Brexit, is due to expire on 18 June 2023 (see Pensions Bulletin 2019/42).  Regulations to extend this exemption by two years, to 18 June 2025, and extend a temporary intragroup exemption regime by a further three years to 31 December 2026, will be laid before Parliament soon.

The guidance states that HM Treasury will conduct a review of the pension fund clearing exemption ahead of its 2025 expiry.  It also says that the Government will consider reforming this area of legislation in due course as part of the ongoing process of building a smarter financial services framework for the UK.


The 2012 European Market Infrastructure Regulation (EMIR), which lays down the clearing requirement for certain types of derivative contracts, contained a temporary exemption for pension funds in the hope that a technical solution could be found to assist, in particular, DB schemes using liability-driven investment strategies.  The EU has still to find a solution, as has the UK post-Brexit.  This does seem to be the can that keeps on being kicked down the road, but at least, for now, UK schemes can continue to ignore EMIR.

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Illiquid investment policy regulations finalised

Draft regulations relating to new illiquid investment policy initiatives for certain DC and CDC schemes, issued by the DWP in January (see Pensions Bulletin 2023/04), have now passed Parliamentary scrutiny and been laid in final form.

The Occupational Pension Schemes (Administration, Investment, Charges and Governance) and Pensions Dashboards (Amendment) Regulations 2023 (SI 2023/399) come into force on 6 April 2023.

As previously reported, they bring in an exemption for performance-based fees from this date, contain “disclose and explain” illiquid investment policy requirements that will take effect from the end of the first scheme year after 1 October 2023, along with a requirement (for certain DC schemes only) to disclose and explain, in their annual Chair’s Statement, the allocation of assets to different asset classes in their default arrangement(s).


The policy work in this area has been extensive and long drawn out.  At least it is now over the line, but whether it will provide the starting gun for a step up in illiquid investment by DC schemes remains to be seen.

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PPF publishes its latest business plan

The Pension Protection Fund has set out some short-term goals in its 2023-24 business plan.  This follows the publication last April of its 2022-25 strategic plan and 2022-23 business plan (see Pensions Bulletin 2022/13).

The business plan sets out goals under the headings of service standards, asset and liability management, sustainability and inclusion, and use of technology.  Items of particular interest include:

  • Completing implementation of “Hampshire” uplifts and the removal of the cap for impacted members by March 2024
  • Setting up “an appropriately resourced and skilled Risk and Compliance framework”
  • Establishing how the PPF expects to evolve the levy methodology, with stakeholder engagement

The business plan also mentions the DWP review of the PPF (see Pensions Bulletin 2023/01), saying that the PPF has begun to put the recommendations in the review into practice.

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Law Commission launches once-in-50 year review of finances after divorce

The Law Commission of England and Wales has announced a wide ranging review of the laws governing how finances are divided when couples end their marriage or civil partnership.

The project page notes that the core divorce / finance legislation, the Matrimonial Causes Act 1973, is now half a century old.  It may be due for overhaul.

The terms of reference of the review include the division of pension assets on divorce.

Preliminary work on the project, which will be a lengthy one, has started and the Law Commission aims to publish a scoping paper in September 2024.


There are few complaints about how pension sharing and earmarking operate on a technical level but there is a perception that pension assets do get neglected when matrimonial assets are divided.  It may be that the review will address this.

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WASPI still stinging

Looking back at our report on the progress of the WASPI (women against state pension inequality) campaign in Pensions Bulletin 2022/46 it seemed then that the end of the road might have been reached.  But it seems not.  This week the Parliamentary and Health Service Ombudsman, in the face of judicial review proceedings instigated by WASPI, announced that it has agreed to look again at part of its unpublished “stage 2” report.


It is unclear how this will affect the eventual outcome as to whether or not women born after 6 April 1950 will receive compensation, but the campaign continues.

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