Open schemes

This code of practice applies to activities related to valuations with effective dates on and after 22 September 2024. For activities related to valuations with effective dates before 22 September 2024, refer to the 2014 DB funding code (PDF, 401kb, 51 pages).

1. Open defined benefit (DB) schemes, that is schemes that are open to future accrual, are a key part of the pensions landscape, playing a vital role in continuing to provide new accrual of benefits to active members of those schemes.
2. Open schemes may be open or closed to new entrants. However, even within those classifications there is a wide range of open schemes. The spectrum can range from schemes which closed to new members some time ago, where future accrual is small compared to past service liabilities, to schemes which remain open to new entrants, where future accrual is significant and anticipated to remain so.
3. Open schemes will have some different characteristics from those schemes that are closed to future accrual. For example, when considering the maturity of the scheme, while a closed scheme would be expected to mature, an open scheme that is open to new members might remain in a ‘steady state’ and therefore not mature if there is a sufficient flow of new members into the scheme. Also, an open scheme that is closed to new entrants might be expected to mature more slowly than an otherwise similar closed scheme.
4. This means relevant guidance is required for open schemes reflecting their unique characteristics and this has been included throughout this code.
5. This section summarises guidance specific for open schemes, and signposts where this can be found in the code. It is intended as an additional resource for those involved with open schemes. It is still important to read the whole code, which contains guidance applicable to all schemes (open and closed).

Low dependency

6. We recognise that for many open schemes that are open to new entrants there is no intention to close in the foreseeable future. However, to comply with the legislative requirement to set the scheme’s low dependency target in the funding and investment strategy, the trustees will need to consider how they would provide accrued benefits for existing members over the long term if the circumstances of the scheme were to change. For more detail on this, see paragraphs 10 and 11 of the funding regime.

Significant maturity

7. In the relevant date and significant maturity module of this code, we set out our guidance for projecting maturity for all schemes with additional guidance for open schemes. This guidance reflects the regulations which allow for an assumption to be made for future accrual and new entrants when projecting the maturity of open schemes. These projections will be used to determine when the scheme is expected to reach significant maturity using these assumptions.
8. Our expectations regarding this can be found in the section on calculated projected duration (maturity): additional guidance for open schemes from paragraph 13 of our relevant date and significant maturity module in this code.
9. As explained in that section, the use of such assumptions will mean that an open scheme can be expected to take longer to reach significant maturity than an equivalent closed scheme. This extra time can be allowed for in the de-risking plan set out in the journey plan and reflected in the section of this module on technical provisions (TPs) assumptions below.
10. This will mean it can be assumed that risk will be taken for a longer period of time, compared to an equivalent closed scheme. When this is reflected in the discount rates, it will mean that the TPs assumed for an open scheme can be lower than for an equivalent closed scheme of the same maturity.

Journey planning

11. When open schemes are carrying out their journey planning and determining when they will reach significant maturity, they can allow for an assumption for new entrants and future accrual.
12. In addition, when carrying out the analysis to determine the supportable risk over the reliability period, open schemes should make allowance for future accrual and the contributions that are being paid in respect of that future accrual.
13. The specific guidance for open schemes can be found in the section journey planning for open schemes from paragraph 35 onwards.

Statement of strategy

14. The specific characteristics of open schemes are reflected in the regulations. This means that additional information is required from open schemes in the supplementary matters of the statement of strategy. This is referred to in paragraph 20(c) section of the statement of strategy module of this code.

Technical provisions and cost of future service

15. Paragraph 14 of the technical provisions module of this code reiterates that assumptions can be used for future accrual and new entrants when projecting the point of significant maturity. This can be reflected in the journey planning for the scheme and then the assumptions underlying the TPs.
16. The cost of future accrual section of the code from paragraph 30 onwards also contains information for open schemes. It sets out areas we expect trustees to consider when determining the cost of future accrual for open schemes. It also makes clear that trustees can consider using surplus to fund that accrual where appropriate.

Assumptions

17. Expectations for setting assumptions in the low dependency funding basis sets out our expectations for assumptions, which are also relevant to consider when setting the TPs. It includes our expectations for salary increase assumptions, which may be relevant for many open schemes.

Back to top

Is this page useful?