Knowledge Hub


Draft pensions regulations: your help needed!

CFG and LCP need your help to understand the impact of draft pensions regulations. Richard Sagar, Head of Policy, CFG explains.


The Department for Work and Pensions (DWP) has launched its long-awaited consultation on draft new Defined Benefit pension funding and investment regulations. The regulations set out how pension schemes must be funded in the future.

Together with pensions advisors at LCP, CFG has been examining the potential implications of the draft regulations. Our concerns are that current flexibilities may reduce and that some charities may need to increase the funding to their pension schemes at a time when finances are already stretched.

We have set out the background to the regulations below and more detail is included in LCP’s News Alert.

We would like to gather information about your pension scheme to see whether you are likely to be affected in the near term. Please complete this short questionnaire. It will take less than two minutes to fill out and will provide us with the information we need to respond to the DWP consultation, which closes in mid-October.

We want to ensure the charity sector’s voice is heard on this important issue.

To help you understand more about the draft regulations, we are holding a roundtable session with LCP on 7th October at 12:00-13:00. If you would like to attend please sign up here.


Background: a summary from LCP

The new regulations will be fundamental for DB pension scheme funding and investment in the future. They amend and extend the current DB scheme funding regulations, providing the necessary legislative backing to enable the Pensions Regulator (TPR) to deliver its new approach to the regulation of scheme funding.

More detail of TPR’s approach will be set out in their new funding Code of Practice – the second consultation on which is likely to follow the consultation on these draft regulations.

Some immediate points from the draft regulations are as follows:

  • As expected, the regulations require a state of “low dependency” on the employer (essentially a low risk position) for both investment and funding strategy by a time of “significant maturity” – which broadly speaking is likely to be when a scheme is mostly made up of pensioner members. The questionnaire linked above is aiming to give sufficient information to help us understand if you will shortly be in that position or are already there. There is a material risk that this new requirement could reduce the flexibility offered currently to charities leading to higher contributions, particularly for schemes that are relatively mature.

  • The regulations say that a low dependency investment allocation requires schemes to “broadly match” cashflows with benefit payments and be such that the value of assets relative to liabilities is “highly resilient” to short-term adverse changes in market conditions. These terms are open to some interpretation but nonetheless this is, as with funding, potentially quite restrictive on investment allocations for schemes at or close to significant maturity.

  • Deficit recovery plans must be such that deficit is recovered “as soon as the employer can reasonably afford”. This wording is stronger than in the current Code, particularly as under the draft regulations it would become a legal requirement. This is clearly hard to define for charities, given the need to use charitable funds to meet a charity’s purpose, and could have potentially significant implications for contribution requirements particularly if combined with the above points. We could certainly see pension scheme trustees feeling the need to assess affordability more carefully and push for higher contributions to make sure they meet the requirements of this new regulation - something that is going to be particularly difficult to do for multi-employer schemes.

  • A scheme’s funding and investment strategy must include, amongst other things, the investments intended to be held at significant maturity. Under Pension Schemes Act 2021 such a strategy will require agreement of the charity hence this has potential to give charities more say over investment strategy than they do currently – it will be interesting to see how this develops, and will increase the importance of charities engaging with the trustees of their pension scheme about investments. (Note the requirement for charities to agree the future investment strategy may not apply for schemes where the pension trustee has the power to set the contributions.)

  • For the first time, there are new rules on measuring the strength of the employer covenant on which we are expecting TPR to build extensive guidance and it is important that this is charity-aware and not focused only on for-profits.

For further information about the draft regulations, email Richard Soldan or Edward Symes at LCP. For more information on CFG policy, please email Richard Sagar, Head of Policy.


« Back to the Knowledge Hub