The Pensions Regulator is seeking views on defined benefit statements of strategy. As the requirement increases the amount of information schemes must submit, industry has said it could be costly and burdensome for schemes.  

From 22 September this year, DB trustees will be required to complete a statement of strategy alongside their actuarial valuation, in which they set out a long-term funding strategy and their approach to managing associated risks. Trustees will need to explain how they will reach low dependency funding by the time the scheme is significantly mature.

The statements will have two parts, one which records the funding and investment strategy, and a second which lists other matters, for example how well the funding and investment strategy is being implemented, the main risks to the strategy and how they are being managed.  

Alongside its consultation, TPR has created statement of strategy templates after engaging with industry, “to minimise the administrative burden on trustees”, and is now seeking feedback on its proposals.   

Interim director of regulatory policy, analysis and advice, Louise Davey, said: “Receiving statements of strategy will give us additional data to better understand journeys that schemes are on as they mature, improving our regulatory oversight. Our proposals are designed to make it as easy as possible for trustees to comply with new legislation, and ultimately to show how they are acting in the best interest of savers.”  

Davey added that TPR is keen to have a broad range of views. “In particular, we want to know if people think we are being clear on what data we’re asking trustees to provide, whether this data is readily available, or what challenges there could be in sourcing it,” she said.  

The new strategy statements will ramp up the amount of data schemes need to submit to TPR, and some in the pensions industry believe it could create considerable extra work.   

“This looks like a significant addition to valuations. The challenge will be to streamline compliance so it’s as easy as possible,” said Laura McLaren, head of DB actuarial consulting at Hymans Robertson.  

She noted that a newly inserted clause in the regulations had “offered some hope TPR would use more discretion in how much information schemes need to provide”, but that it has not cut requirements in many places.    

Whether a scheme chooses to go down the fast-track or the bespoke route will have the biggest effect on how much detail it needs to provide, McLaren observed, with the template bespoke statement running to more than 20 pages. 

For the first time, trustees will be required to include covenant information with a valuation and to say how the scheme will provide benefits in the long term, as well as summarise the approach to derisking over the course of the journey plan. 

“It’s not clear how much value the extra disclosure requirements add in a funding landscape that’s changed since the process for these changes began. Only a small, and shrinking, number of schemes are poorly funded,” McLaren noted, saying the focus has shifted to surplus management amid the Mansion House reforms. 

The Society of Pension Professionals has welcomed the consultation but has also warned the new requirement could be onerous.  

President Steve Hitchiner said: “We are particularly pleased that TPR has acknowledged the need to deliver the benefits of the statement of strategy without unnecessarily increasing trustee burden and cost for schemes, which are key concerns for many SPP members. The easements for smaller schemes are welcome, as is the provision of a standard template that schemes can populate.” 

However, “we remain concerned that many schemes will inevitably need to provide lots of new information compared to current valuations, including in relation to covenant, which could prove burdensome for some", he added. 

Mark Tinsley, senior consulting actuary at Barnett Waddingham, said it appears as if the regulator plans to use the change in funding regime to significantly increase the amount of data it collects from schemes at each valuation, after being criticised in the wake of the 2022 gilts crisis.

“While understandable, there is a danger that this drive to become a more data-led organisation could result in significant extra costs for schemes,” he warned.

TPR seems to be mindful of this for some schemes, but “there are still instances where the amount of work does not appear justifiable and further reflection from TPR is required”, Tinsley said.  

The consultation closes on 16 April.