TPR Statement of strategy: consultation


On 5 March 2024, the Pensions Regulator (“TPR”) issued a consultation (“the Consultation”) on the statement of strategy (“the Statement”) that DB trustees will need to submit as part of planning and managing their scheme’s funding and investment strategy.

In this response

We welcome the opportunity to respond to the Consultation. In addition to answering specific questions which are pertinent to our practice, or which we believe could give rise to difficulties in practice for our clients, we have provided some initial general comments.

General comments

  • We welcome the various references in the Consultation to TPR taking a proportionate approach in relation to the application of the new funding and investment strategy (“FIS”) legislation, and in developing the requirements for the new Statement. Similarly, we support TPR’s desire to “streamline” the information collected and remove any unnecessary duplication (eg with the information gathered via the scheme return). Against this backdrop, we also note the intention to request less information from smaller schemes.
  • However, for most DB schemes, the Statement will be a lengthy and prescriptive document, requiring extensive actuarial, investment and covenant information to be provided. Based on the Consultation proposals, we remain concerned that the work involved in collating the information for the purposes of submitting the Statement will inevitably increase the burden on, and costs incurred by, DB schemes. Trustees will require input from several advisers, including actuarial, investment, covenant, and no doubt legal. As well as the monetary cost there are also likely to be resourcing implications, especially for smaller schemes.
  • Whilst we agree that it is sensible to have pre-defined templates, it is important that there is sufficient flexibility built in to allow scheme-specific circumstances to be taken into account. We assume that the Statement will be submitted via an online form which requires schemes to select between certain prescribed options. Having reviewed the draft example, we remain concerned that this format may be too rigid to cater seamlessly for the wide variety of DB scheme circumstances we encounter.
  • In particular, one area of concern relates to open DB schemes, as they will need latitude to explain their scheme-specific circumstances. The need to accommodate such schemes within the scheme funding system was recognised during the Pension Schemes Act 2021’s passage through Parliament, with important Government assurances being secured concerning both the legislation’s implementation and TPR’s revised DB funding code. This sentiment is echoed in the Consultation, noting the importance for trustees of open DB schemes to “have the scope to articulate and demonstrate their scheme-specific circumstances in the statement of strategy”. In light of our comments above, we wonder whether TPR has sought input on its proposed templates specifically from such schemes.

Responses to specific consultation questions

Our approach to the statement of strategy

Question 1: To what extent do you agree that our proposal to adjust the information required of smaller schemes as outlined in the document is pragmatic and proportionate?

It is important to recognise the different circumstances faced by smaller schemes, and that the potential burden and additional costs of compliance will often be significantly larger for them relative to the scheme’s assets and liabilities. We therefore agree with the proportionate approach of adjusting the information required here.

Question 2: To what extent do you agree with the two definitions proposed for smaller schemes depending on whether we are requesting actuarial or investment information?

The definition of smaller schemes for actuarial information, ie as having fewer than 100 members, is consistent with other carve-outs in pensions legislation (eg exemptions from the requirement to obtain annual actuarial reports). The definition of smaller schemes for investment information is consistent with definitions in the scheme return designed to reduce additional burden on trustees.

It is potentially confusing though to have two definitions, with the result that a scheme could be considered a smaller scheme for actuarial information purposes but not for investment (or vice versa). That said, schemes in scope are likely to welcome the acknowledgment that a scheme can still be a “smaller scheme” despite having 100 members or more.

Question 3: To what extent do you agree with our proposal to have pre-defined templates for the statement of strategy to help trustees provide information that is proportionate, relevant and specific to the circumstances of their schemes? 

Having templates helps to provide clarity as to the information required and the level of detail. We therefore agree that this seems a sensible approach, especially as not all schemes would have the resource readily available to follow a bespoke route.

However, as noted in our “General comments”, it is essential that schemes are given sufficient flexibility to tailor the information (where appropriate) to reflect scheme specifics.

Building on this, where the Statement imposes information obligations which are not strictly required by the legislation, or where scheme-specific circumstances mean the information cannot be provided, there needs to be scope for schemes to select an option such as “not applicable”. Otherwise, this could cause schemes unnecessary delays in finalising the online form.

Question 5: To what extent do you agree with the key differences in the information we ask for between the four proposed templates?

We agree with the key differences between the templates, ie categorising schemes according to whether they are Fast Track/Bespoke and whether they have reached the “relevant date” or not. The four proposed templates seem to strike a good balance between providing options to cater for different scheme circumstances, whilst avoiding too many templates which might render trustees unclear as to which to use.

Question 6: Are there any scenarios that the proposed four templates are not suitable for?

In broad terms, the proposed four templates should cover most scenarios. However, in light of our comments above, we wonder whether it would be helpful for there to be additional templates to cater for schemes that are not traditional DB schemes, such as cash balance schemes and DC schemes with guaranteed annuity rates.

Question 7: To what extent is the example Bespoke template a clear tool that supports trustees’ long-term planning and risk management and facilitates engagement between trustees, their employer and TPR?

TPR notes that the Statement aims to be a “useful long-term planning and risk management tool for trustees”, as well as ensuring TPR has the information it needs to regulate effectively. No doubt the Statement will be a useful tool for TPR, although we wonder whether all of the information will be used and is therefore strictly necessary. We are also unsure of the extent to which the Statement will support trustees in the intended way, especially given the Statement’s length and level of detail. There is a risk that it could be seen as additional regulatory burden on top of the existing information TPR receives through the actuarial valuation and scheme return.

Question 8: Do you have any further comments on our general approach to the statement of strategy template?

  • As referred to in our “General comments”, we presume the Statement will need to be submitted via an online form. This format could raise challenges in practice, given the information will need to be collated from multiple sources and discussed/agreed with the employer. It can be difficult to agree text in an online format which requires login details, compared to a word document which multiple parties can have access to and edit as a working document.
  • The length of the Statement will exacerbate practical challenges if it can only be completed online. A word document is more straightforward to proof-read, making it easier to eliminate potential errors.
  • An online form risks an error being introduced as information is transferred across (eg from a word document) to the various text boxes. This raises the question as to who has the authority to fill in the form on the trustees’ behalf, and who will bear responsibility if an error is accidently introduced.
  • Also, much of the information will not change between Statement submissions, so it would be easier to be able to update the relevant parts of a word document, rather than having to start again with the entire online form.
  • It will be important for there to be a clear demarcation between the information required to satisfy Part 1 of the Statement, needing employer agreement, and that required for Part 2, in respect of which the employer must be consulted.

Part 1: Funding and investment strategy

Question 1: To what extent do you agree that the long-term objective options (buy-out, run-off, move to a superfund or alternative consolidator) capture most long-term objectives for a scheme?

It would be helpful for TPR to clarify what is meant by the long-term objective of “run-off”. Does this encompass objectives other than going to buy out or moving to a superfund / alternative consolidator (ie encompassing “run-on”)? Against the backdrop of the Mansion House reforms, and the DWP’s proposals regarding surplus, it could be helpful to explicitly include an option to “run-on”.

In addition, some schemes are currently in a position where they have several avenues open to them going forward. As such, a scheme may be considering a combination of available options, including run-on.

We note there will be an option to insert a narrative explanation of an alternative long-term objective but TPR “envisage this would not often be used”. However, we consider it would be useful for most trustees to be able to describe long-term objectives in their own words and schemes should not be discouraged from doing so.

Question 3: To what extent do you agree that it is sensible to include all three funding bases (low dependency funding, technical provisions and buy-out)?

We agree it is sensible to include all three funding bases. Schemes should have that information as part of their valuation.

Question 4: To what extent do you agree that the standard wording in the proposed statement of strategy template is adequate to outline the funding journey plan?

It is undoubtedly helpful to have parameters regarding the information needed. However, as outlined in response to question 1 of Part 1 above, it is equally important for trustees to be able to describe in their own words what their funding journey plan is and why.

It would be helpful for TPR to clarify its expectations around what it describes as “standard wording” and its purpose and extent. For example, does TPR expect that wording to be used always or could a scheme use alternative wording? Where trustees would prefer to use alternative wording, or feel it is pertinent to do so, it is conceivable that they could be met with employer resistance for diverting from the template. This makes it especially important for TPR to confirm the position.

Question 10: To what extent do you agree with the proposed approach to capture information on inflation and pay increase data?

We agree with the proposed approach, although there is a risk that not all employers will be forthcoming, in particular given the extent of the information required. In this (hopefully unlikely) situation, trustees would need to rely on regulation 6 of the Occupational Pension Schemes (Scheme Administration) Regulations 1996, which enables them to request “such information as is reasonably required” from a sponsoring employer, together with certain of its advisers.

Question 14: Do you have any further views or considerations on the information required for Part 1 of the statement of strategy, including any views on alternative approaches or missing data to support Part 1?

The information requirements seem very comprehensive, and we do not consider there is any missing data.

Related to our “General comment” on proportionality, while we appreciate TPR may want certain additional information on a scheme’s journey plan and how the scheme intends to get there, the information required for Part 1 of the Statement is quite granular. Also, if this Statement is intended to be shared with members in the future, then the level of detail would not be appropriate.

Part 2: Actuarial information

Question 6: To what extent do you agree with the removal of the requirement to provide accounting valuation and s179 valuation data from a valuation submission perspective?

We agree with this removal as TPR will receive s179 valuation data via the scheme return in any case.

Part 2: Investment information

Question 1: We do not envisage schemes will incur significantly more costs in providing journey plan investment risk data. To what extent do you agree with this assessment?

See our “General comments” above.

In relation to the specific costs in providing journey plan investment risk data, this will depend on what risk data schemes are already in regular receipt of, and the level of sophistication of any system they have signed up to with their actuarial and investment consultants.

Part 2: Covenant information

Question 2: To what extent do you agree with the proposal that aggregated covenant information should cover employers that account for at least 80% of scheme liabilities?

The phrase “employers that account for at least 80% of scheme liabilities” is somewhat ambiguous. Does it mean employers that would be liable for 80% of scheme liabilities on a last employer standing basis? Alternatively, “account for” could be read as referring to employers who have created 80% of the liabilities, rather than employers supporting 80% of the liabilities.

We do have concerns about how this assessment would work in practice, especially in a scheme with a large proportion of orphan liabilities. There is a risk that trustees could consider employers which, when it comes to ultimately being responsible for supporting scheme liabilities, would not be material. Furthermore, the employers accounting for 80% of scheme liabilities may only be one scheme exit away from changing, so this definition could paint a rosier picture in some cases.

In practice, schemes are in the best position to know which employers to look at for meaningful covenant information as it will be very scheme specific. This makes it difficult to apply a single definition across all schemes without being overly restrictive or, in contrast, overly flexible. Also, for some larger multi-employer schemes, particularly those with unconnected employers, it may be more difficult to pin down the relevant employers for this purpose.

For the above reasons, we would welcome a more holistic and less prescribed approach to aggregated covenant information. For example, there could be an expectation that it should cover employers that account for at least 80% of scheme liabilities, but with trustees being given the option of explaining why they have taken an alternative approach that better suits their scheme’s circumstances.

For example, trustees whose schemes are fully bought in, are operating on a self-sufficient basis or with a very low dependency on covenant, may all wish to consider taking an alternative approach. This may become even more relevant if we start to see more schemes opting to run on in light of the DWP proposals around surplus.

Question 3: We expect employers to work with trustees and provide the appropriate information. To what extent do you agree that information required will be obtainable to understand the level of risk supportable by the covenant?

Trustees or their advisers are expected to provide covenant information based on what is provided to them by employers or other entities with a legal obligation to the scheme. However, it is worth noting that there remains some employer resistance to providing covenant information which is not in the public domain.

Question 4: To what extent do you agree that the covenant information we propose to request for Bespoke and Fast Track valuation submissions is reasonable and proportionate?

We agree that it is reasonable and proportionate to request the additional details proposed.