An interim response to our consultation on the statement of strategy that trustees will need to submit as part of planning and managing their defined benefit scheme funding.
Published: 23 September 2024
Overview
We published our consultation on our proposed approach to the statement of strategy on 5 March 2024. The consultation closed on 16 April 2024.
We have carefully considered all responses to the consultation and made changes to our approach following your feedback. For many schemes, this means reducing the amount of information we ask for. This interim response provides a high-level overview of those changes. It also gives information to help trustees and employers understand our requirements while undertaking valuations in line with the revisions to the funding regulations.
We are publishing this interim response now to give trustees and employers the information they need as early as possible. We will publish a fuller response in the winter outlining your responses to the consultation and our consideration of them.
Alongside this response, we are publishing four statement of strategy illustrative templates. These templates show the following sets of scheme circumstances.
- Fast Track before the relevant date.
- Fast Track on or after the relevant date.
- Bespoke before the relevant date.
- Bespoke on or after the relevant date.
You can find more information about our Fast Track and Bespoke regulatory approaches in the Fast Track and regulatory approach consultation response on our website.
We are also publishing a reference list of relevant data and information that corresponds to the illustrative templates and providing guidance on certain items, including definitions of terminology used.
Submitting the statement of strategy
To comply with the requirements of The Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024 (the Regulations) trustees must normally submit their statement of strategy to TPR as soon as is reasonably practicable after having prepared or revised their funding and investment strategy.
In accordance with regulation 18 of the Regulations, we have determined that the statement of strategy must be submitted in digital form.
The new DB funding code gives us an opportunity to evolve how we engage with schemes on their valuations. We are enhancing our digital service to make the process for submitting valuations more reflective of how users engage with us. We aim to do so while ensuring we are capturing the information we need to identify emerging risks and respond in a targeted way. It is important we take the time to do this properly, so we deliver benefits to our regulated community and, ultimately, savers. We expect to launch the new digital service in spring 2025.
When the new digital service is available, we will expect trustees to use this to submit their statement of strategy along with a copy of their scheme's actuarial valuation. If the scheme is in deficit, we will also expect them to provide a copy of the schedule of contributions and the recovery plan.
If the effective date of your scheme's valuation is on or after 22 September 2024, you should not use our existing digital systems to submit your statement of strategy or other valuation information. While we do not expect trustees to delay the completion of their valuation, we will not expect submission until the new digital service is live. During this period, we will not treat it as a breach if there is a delay to the submission of the statement of strategy and other valuation documents because our digital service is not enabled.
Statement of strategy illustrative templates
We are publishing four statement of strategy illustrative templates now which show our data requirements. This will enable schemes with valuations with effective dates between 22 September 2024 and the date our digital service launches to begin their valuation planning and processes with confidence.
Once the digital service is available, it will reflect the information and data requirements of the statement of strategy, which will not change from these illustrative templates. However, we will be talking to trustees and employers to inform our approach to the online submission process and statement of strategy outputs.
As a result, the final appearance of the templates is likely to differ from the illustrative templates we are publishing here. The information in the templates, data list, and the accompanying guidance should enable schemes to have some certainty in progressing their valuation while we develop our digital systems and processes.
The information provided here should be considered in conjunction with the DB funding code of practice, which was laid in parliament on 29 July 2024. You can view the draft DB funding code on our website along with our draft code consultation response and our Fast Track and regulatory approach consultation response. Trustees should follow legislation and code principles in undertaking their valuation and determine the appropriate approach depending on the circumstances of their scheme. Once they are clear on their preferred approach, they can refer to our guidance to determine whether this is bespoke or Fast Track and which illustrative template will apply.
Schemes with valuation effective dates before 22 September 2024
Consultation responses
We received 55 responses. These ranged from industry groups to large actuarial, covenant and legal advisers to individual lay trustees representing small schemes.
Key comments raised
There was broad support for our proposal to introduce pre-defined templates for the statement of strategy. However, several comments were made regarding their proposed content. The main comments are listed below.
- While the concept of four pre-determined templates with varying levels of detail was broadly supported, respondents suggested that the templates could go further in reducing the level of detail required for certain scheme characteristics, and that they could be simplified.
- Many respondents raised the issue of proportionality of the information requested, and some suggested information beyond the legal requirements was requested.
- Respondents considered there to be a lack of flexibility in capturing schemes’ long- term objectives and other information addressing the schemes’ particular circumstances.
- Some respondents indicated that templates were not suitable for all scheme types, such as guaranteed minimum pension (GMP) underpin schemes.
- There was specific and useful feedback relating to elements of the statement of strategy throughout the responses.
We will provide additional detail about these and other themes when we respond more fully to the consultation responses before the end of this year.
Changes in our approach
Considering the consultation responses, the final version of the 2024 regulations and changes to draft DB funding code, we have made a number of changes to the information required to be submitted by schemes in the statement of strategy. We also reviewed the templates themselves. We briefly summarise the main changes below.
General
Simplified statement of strategy templates
We have revised the templates to remove much of the narrative explaining the legal requirements, included appendices in which detailed information is to be provided and more narrative boxes for additional comments.
We have also adjusted the templates to accommodate open schemes and for schemes such as GMP underpin schemes and cash balance schemes.
Smaller schemes
There will be one definition of small schemes, which is as follows.
“Those with 200 members or fewer, excluding members who are eligible for lump sum death benefit only, for hybrid schemes those members with defined contribution (DC) benefits only and fully insured annuitants where they are not included in the calculation of the technical provisions liabilities.”
We estimate that this definition will mean around 50% of schemes will be eligible for the small scheme easements regarding the information to be provided in the statement of strategy.
Small schemes that meet the Fast Track parameters will not be required to submit detailed covenant information.
Low-risk schemes
We have removed the requirement to submit detailed covenant information for schemes that meet any of the definitions listed below.
- Schemes that follow a Fast Track approach and would be in surplus on a low dependency funding basis after applying an immediate Fast Track stress test.
- Schemes that follow a Fast Track approach and where full benefits for all members have been secured with an insurer.
- Schemes that follow a Bespoke approach which have reached their relevant date and would be in surplus on a low dependency funding basis after the application of an immediate stress test.
Long-term objective
The trustees’ strategy for providing benefits in the long-term will be captured using free text rather than a defined set of choices. This will enable schemes to better articulate the nature of their long-term objective in a scheme-specific way.
Actuarial information
Benefit cashflows
We have removed the requirement to submit cashflow information for all Fast Track schemes, as well as for small schemes whether they follow a Bespoke or Fast track approach. We have also changed the data requirement to 40 years of cashflows.
We are now collecting just one set of cashflows in relation to total accrued benefits on a technical provisions’ basis. We are no longer requesting cash flows in respect of future service. However, for schemes open to accrual, we are now requesting the total pensionable salaries and future service contribution rate as at the effective date of the valuation.
Discount rates
We have added multiple horizon and dynamic discount rates as discount rate methodology options. We have reduced the number of years for the provision of forward yields to 40 years.
We have included composite as an alternative underlying yield to capture curves such as corporate bonds or combinations of corporates and gilts. We have also added an additional narrative box for explanation where the options provided do not capture the approach taken.
Other actuarial assumptions
We have added two additional questions relating to the sensitivity to inflation values as part of the summary of the actuarial valuation.
We have reduced the amount of information requested in relation to commutation.
Current funding position
We have removed the requirement to specify the solvency funding level in the funding and investment strategy but have retained it in Part 2 of the statement of strategy.
Defined contribution and cash balance liabilities
Provision has been made to capture the defined contribution and cash balance liabilities in respect of relevant schemes.
Employer expenses
We have added the option to provide additional commentary about expense reserves if appropriate.
Investment information
The strategic asset allocation
We have removed any scheme size differentiation for the provision of strategic asset allocation information. This is now referred to as notional investment allocation in line with the code. Schemes now simply provide notional investment allocation information in line with Tier 1 of the scheme return.
De-risking in the journey plan
Information requested concerning de-risking in the journey plan is linked more directly to statements made in the code.
This means trustees will now be required to provide a high-level overview of how they expect the notional investment allocation to evolve from the current structure to the intended asset allocation at the relevant date in line with the common examples set out in the code. These examples include the following.
- Linear evolution.
- Linear evolution from the end of the reliability period.
- Stepped evolution.
- Stepped evolution from the end of the reliability period.
- No change from current notional investment allocation.
In addition, trustees are given the ability to provide supplementary narrative information relating to their de-risking approach where appropriate.
Investment risk over the journey plan
We have provided information in the guidance accompanying the data list. This clarifies our intention to allow simplification and pragmatism in the calculation of the risk figure for the intended asset allocation at the relevant date.
Interest rate and inflation hedging information
We have added additional information to the templates for those schemes that have specific target interest rate, inflation hedging ratios, or both at the relevant date.
Currency hedging
We have removed the requirement to submit information about currency hedging.
Covenant information
Minimum or ‘at least’ figures
Numerical values in the covenant section can be framed in terms of ‘equal to or at least’ or ‘equal to or no more than’ to enable a more pragmatic approach to their calculation.
Multi-employer schemes
Trustees can aggregate covenant data if they consider it appropriate based on their specific knowledge. An optional free text box will allow trustees to explain their approach.
Further details on assessing covenant for multi-employer schemes will be provided in the forthcoming covenant guidance.
Non-segregated, non-associated multi-employer schemes
Our intention is that this small subset of schemes should submit a summary of the trustees’ assessment of supportable risk over the reliability period as an appendix to the statement of strategy. This is instead of submitting details in the employer cashflow format required for other schemes.
Further detail about these schemes and the requirements relating to them is provided in the illustrative templates and the guidance accompanying the data list.
Next steps
Publication of the consultation response
We will be publishing a fuller response to the consultation in the winter. This will give further details on the responses received and the changes we have made to the content of the statement of strategy.
We expect to publish the covenant guidance in the next few months to make it available as early as possible for trustees who are starting to prepare their valuations. We have extensively engaged with industry as we have developed the guidance.
Digital service
We continue to engage with stakeholders in the industry to develop our digital service and ensure the process for submitting the statement of strategy is as simple as possible.
Schemes should not submit their statement of strategy to us until our digital service is enabled and we will issue further updates to let you know when. However, should you wish to discuss your valuation process with us, please contact us in the normal way.
We expect that digital submissions will be enabled in spring 2025.
If you would like to take part in our user research, please contact us at tpr_research@gov.uk.