Pensions financial reporting update

This page details relevant changes in the regulatory and financial reporting environment. Further details of many of the changes are set out on our pensions sector page.

Single TPR Code of Practice
Pension Schemes Act 2021
Task Force on Climate-related Financial Disclosures (TCFD)
Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018
TPR Powers
Value for Money Framework
PASA guidance on transfer of Scheme Administration
DB Funding code
RSM Publications

1. Single TPR code of practice

On 17 March 2021, the Pensions Regulator (“TPR”) launched a consultation on its intentions to consolidate 10 of its 15 codes of practice into a single code, their aim being to "create a single point of consistent and up-to-date information for all pension scheme governing bodies".

In addition, this consultation incorporated the changes introduced by the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 which stressed the need for Trustees to have "effective systems of governance", bringing in a requirement for Trustees of schemes that have more than 100 members to perform their "own risk assessment".

Under these regulations, trustees are expected to establish a governance structure that is proportionate to the size, nature, scale and complexity of their scheme, making a risk assessment as to the suitability of their policies and procedures to address the financial, operational and other risks that their scheme faces.

This consultation period ran until 26 May 2021. On 24 August 2021 TPR published its interim response to this consultation, noting that more than 10,000 individual answers were received from a total of 103 respondents during the 10-week consultation period.

TPRs interim response to the consultation highlighted two areas that it would revisit its planned approach to:

Unregulated investments

an unintended consequence had been identified in its objective to limit the use of unregulated investments. As such they will now revisit how the original policy objective can be achieved without impacting larger schemes that use these assets as part of a well-managed investment strategy.

Own-risk assessment (ORA)

TPR stated that the responses had raised concerns around "the amount of work that it would create, the timeframe, the look of the finished product and the burden it would place on smaller schemes". As such it will look at the guidance requirements for this, reconsider the timeframe for both its introduction and the frequency of renewal of it.

TPR stated that on the whole, despite some concerns around applicability, the modular format of the new code had been welcomed by respondents.

In terms of next steps, TPR said in August 2021 that that the new code would not be laid before Parliament until Spring 2022 at the earliest. The current expectation is that this will now be at some point before the Summer 2023 recess.

While this process has been delayed and the launch of the code remains anticipated, it is not expected that there will be significant changes to the key requirements as outlined in the interim consultation response.

Full details of the consultation response are available here.

2. Pension Schemes Act 2021

The Pension Schemes Bill 2019/20 received Royal Assent on 11 February 2021 and became enshrined into law. This Act introduces:

a framework for “collective money purchase schemes” (often referred to as collective DC schemes);
increased powers for the Pensions Regulator (“TPR”), including the ability to issue fines and to impose Contributions Notices on companies or directors, as well as making it a criminal offence for employers to act in a way that increases the risk of accrued scheme benefits not being received or avoiding employer debts. In advancing the Bill, it was confirmed that these powers were not intended to be retrospective;
a requirement for trustees of DB schemes to create and maintain (with the agreement of the employer) a written statement of their scheme’s funding and investment strategy for ensuring that pensions and other benefits under the scheme can be provided over the long term;
amendments to the notifiable events framework;
pensions dashboards;
restrictions on statutory transfers, as a response to the heightened risk of pension scams; and
requirement for schemes to assess and manage climate risks and opportunities, publishing a climate change report annually, compliance being then reported to TPR through the annual scheme return. Larger schemes (schemes with £5 billion or more in assets (excluding insurance policies), authorised master trusts and collective money purchase schemes) would need to have arrangements in place on climate change governance, strategy, risk management and targets from October 2021, publishing an annual report by the end of 2022. The requirements would then be rolled out to schemes with £1 billion or more in assets the following year, with their application to smaller schemes reviewed in 2024.

Some of the secondary legislation and consultation papers that have followed this primary legislation are detailed in the sections that follow.

3. Task Force on Climate-related Financial Disclosures (TCFD)

On 8 June 2021, the DWP published its response to its January 2021 consultation, "Taking action on climate risk: improving governance and reporting by Occupational Pension Schemes".

This response reconfirmed the detail included under the Pensions Act 2021 above, namely that from 1 October 2021, trustees were required to meet climate change governance requirements, these being set based upon the recommendations made by the Task Force on Climate-related Financial Disclosures (“TCFD”) for the financial sector.

This was then published through “The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021” and “The Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021”.

The Pensions Regulator’s (TPR) Guidance “Governance and reporting of climate-related risks and opportunities” issued December 2021, supported this Statutory Guidance, setting out its expectations of Trustees describing what they need to do and report on to comply with the legislation.

In short, it stated that Trustees are expected to establish what the relevant climate-related risks are for their Scheme and then maintain oversight of these.

Where this oversight is outsourced, Trustees are then expected to take "adequate steps to identify, assess and manage any climate-related risks and opportunities which are relevant to the governance activities they are undertaking".

Trustees are then to report annually through a TCFD report as to how they have done so. Scheme members are then informed through the annual report in the Scheme’s financial statements that this Report has been published and where it can be located.

Illustrative examples were included in this guidance to provide further support.

DWP consultation update

In June 2022, the Department for Work and Pensions (DWP) issued updated Regulations and Statutory Guidance.

This introduced a new requirement for Trustees to include a mandatory portfolio alignment metric. This now means that four metrics must be calculated and reported in TCFD reports from 1 October 2022.

In terms of reporting, all Schemes with assets of £1bn or more on the first scheme year-end date to fall on, or after, 1 March 2020 are now expected to be actively working on the production of a TCFD statement with a review of the requirements for Schemes with assets less than £1bn scheduled to take place in the second half of 2023.

Pensions Regulator response

In March 2023, The Pensions Regulator published its response to the TCFD reports it had reviewed from the first wave of reporting. This provided a balanced view, noting best practice examples, as well as areas where it expected to see more clarity or improvement in reporting.

It did, however, include a suggestion of fines for non-compliance. The Pensions Regulator had previously said that it would be ‘unlikely’ to issue penalty notices to trustees of schemes completing these disclosures. However, within this document the Regulator stated that fines of up to £5,000 for individual trustees and £50,000 for corporate trustees were now possible where regulations have not been met.

In addition, they stated that they will support the DWP with their review of mandatory climate related disclosures taking place later in 2023.

It is also expected that a review of the requirements on disclosures on stewardship activities will take place at the same time with their insights and experience then incorporated into the DWP's review and feedback.

4. Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018

The changes to the regulations included the following requirements for Trustees:

From 1 October 2019:

For schemes required to prepare a Statement of Investment Principles (‘SIP’), it must be updated or prepared to set out:
- how they take account of financially material considerations, including (but not limited to) those arising from environmental, social and governance considerations (including climate change); and
- the Trustee’s policies in relation to the stewardship of investments, including engagement with investee firms and the exercise of voting rights associated with the investment.
In addition, for relevant schemes (a full definition is included in the Occupational Pension Schemes (Scheme Administration) Regulations, but can be broadly summarised as schemes offering money purchase benefits) trustees should:
- publish their SIP on a website so it can be found and read by both scheme members and interested members of the public, and inform members of its availability via the annual benefit statement; and
- for default arrangements, prepare or update the default strategy to set out how they consider financially material considerations including, but not limited to, those arising from environmental, social and governance risk, including climate change.

From 1 October 2020:

For relevant schemes which are required to produce a SIP:
- produce an implementation statement (“IS”) setting out how they acted on the principles that the trustees set out, and how the trustees acted on the Statement of Members’ Views; and
- publish that implementation statement on a website so it can be found and read by both scheme members and interested members of the public and inform members of its availability via the annual benefit statement.

Some of the considerations around the Implementation Statement were challenging. The Pensions and Lifetime Savings Association (‘PLSA’) then published guidance setting out:

what the legislation requires and by when;
some high-level ‘general principles’ for implementation statements;
more detailed possible considerations;
specific guidance on voting behaviour; and
top tips for investment (and responsible investment) communication.

This guidance remains available here.

In October 2021, the DWP issued the following consultation "Climate and investment reporting: setting expectations and empowering savers".

This consultation was produced to aid schemes in understanding what they need to do in relation to the “Paris Agreement” and the required metrics, as the original requirements preceded this.

However, this consultation also included an explanation of DWPs expectations across the IS in those areas where Trustees were required to describe how they had implemented their investment policies.

This included both statutory and non-statutory (or best practice) guidance in areas where either feedback to DWP had indicated Trustees were experiencing challenges, or DWPs own view was that initial ISs were not complying with the Investment Regulations.

On 17 June 2022, the DWP published its first Guidance on Reporting on Stewardship. This detailed the outcome of the prior consultation and was divided into statutory Guidance (must do) relating to Implementation Statements and non-statutory Guidance (should do and could/may do, best practice) relating to Statements of Investment Principles.

The Statutory Guidance applies to Implementation Statements for any scheme year ending on or after 1 October 2022. The non-statutory Guidance focuses on stewardship reporting in Statements of Investment Principles and is applicable for any considerations currently being made.

The guidance also clarified that the Pensions Regulator is the primary audience for Implementation Statements and Statements of Investment Principles, implying that there will be enhanced scrutiny of those documents and the detail therein.

DWP have stated that they will "revisit the extent to which this Guidance is being followed and has helped trustees understand expectations around the SIP and IS – or whether a regulatory intervention is necessary." It is suggested that this will occur in the second half of 2023.

A copy of the consultation is available here.

5. TPR Powers

On 29 June 2021, the Government published a response to its prior consultation on "Strengthening The Pensions Regulator’s Powers: Contribution Notices and Information Gathering Powers Regulations 2021."

Under the Pension Scheme Act 2021, TPR’s new powers include the introduction of a new criminal offence of failure to comply with a Contribution Notice ("CN") or, in the alternative, a civil penalty of up to £1 million.

The response covered TPRs powers relating to Contribution Notices and information gathering powers. This included amounts for fixed and escalating penalty rates where there is non-compliance with any of TPRs information gathering requests.

TPR was asked within the consultation to consider whether it would produce further guidance on the new tests and its new powers more generally.

It was confirmed as part of TPRs response that "TPR is looking at updating its policies in this area as part of a wider piece of work to refresh and align their broader suite of operational policies, including aligning to changes brought about by the Pension Schemes Act 2021".

TPR also confirmed that the "new jurisdiction tests are not retrospective, and that the new employer resources and insolvency tests will only apply to acts (or failures to act) from 1 October 2021".

A further consultation on TPRs powers on notifiable events was issued here. This set out a proposal for additional prescribed events. This consultation closed on 27 October 2021.

The final regulations were originally anticipated to be released in Spring 2022. These are still awaited at the current date [April 2023] with timings still unknown as to when these will be released.

6. Value for Money Framework

On 30 January 2023 the Department for Work and Pensions published a consultation seeking “views on policy proposals to disclose, assess and compare the value for money of workplace pension schemes".

This consultation (which closed on 27 March 2023)

It reminded readers that while “value for money” as a concept could be interpreted in a number of ways, in their view, the key elements of the VFM framework are:

investment performance;
costs and charges; and
quality of services.

They noted the continued need to improve the availability and transparency of information and data on these key factors to enable schemes to compare and improve the overall value for money they provide.

One potential financial statement impact to note was the question asked on the DC Chairs Statement. That is whether it would be more helpful to split the Chair’s Statement requirements into two separate documents. One then being member facing and another that is purely a governance document.

There was no timescale indicated for the published response to this consultation, but it did note that next steps would be affected by an upcoming FCA consultation, with a further consultation to then follow on these in due course.

A full copy of the consultation can be seen here.

7. PASA guidance on transfer of Scheme Administration

In September 2022 the PASA Exit Agreements Working Group published guidance on administration transfers with a view to making these as smooth as possible for any Trustee Boards that wanted to change providers.

It focused on how best to address the common areas of dispute such as:

Delays on transfers.
Unreasonable charges, or ‘out of scope’ services not made clear at the outset by the outgoing administrator.
Deterioration in the service provided by the outgoing administrator during the notice period.

It used the input from the Working Party, as well as its previously published Code of Conduct guidance to formalise this guidance, noting that the smooth transition of administration will continue to be a focus of PASA in the coming years.

8. DB Funding code

Following the Department for Work and Pensions White Paper on “Protecting defined benefit pension schemes” back in 2018, The Pensions Regulator (‘TPR’) subsequently announced that it was revising its Defined benefit funding code of practice (‘the code’) and was undertaking two consultations on revisions to the code.

The first consultation (which closed for comment on 2 September 2020) included:

the new proposed regulatory approach;
the principles underpinning the new framework; and
how they could be applied in practice to provide clearer guidelines.

In the consultation document the Pensions Regulator highlighted a new twin-track compliance route for carrying out valuations (referred to as ‘Fast Track’ and ‘Bespoke’).

The idea was that Trustees could choose either route, changing their approach from valuation to valuation as they wished.

Fast Track was anticipated to be more straightforward, with quantitative guidelines, allowing trustees to assess whether TPR would consider their valuation compliant with the legislation.
Bespoke then offering more flexibility but also possibly involving more regulatory input.

In January 2021, TPR published an interim response to this first consultation. This stated that there was "general support for the principles and regulatory approach proposed in the consultation". However, key concerns were raised relating to how this twin-track compliance would work in practice.

A second consultation, which was originally planned for later in 2021, to focus on the draft code itself, as well as the addressing the concerns on the first consultation, finally landed in December 2022 (with this consultation closed on 24 March 2023).

TPR had stated that "it is vital we take the time to get it right", wanting not only to take the opportunity to learn from the DWP’s consultation on the draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023, which closed in October 2022, but to "recognise the economic backdrop to our second consultation and the balance between security for members and affordability for employers".

This second consultation therefore expands on a number of elements in the draft code, offering further flexibility, as well as providing some further guidance for “open” DB Schemes and additional considerations that will be applied by TPR in respect of such Schemes.

TPR also stated that "the existing code and funding regime will remain in place until such time as the new legislative requirements and code come into effect". When introduced, TPR has stated that the changes will be forward rather than retrospective looking, meaning that only those schemes with valuation effective dates on or after the code’s commencement date will be affected.

Its current proposed timeline is for the Code to be laid before Parliament in mid-June 2023, alongside the DWP’s final regulations, though of course, as TPR itself acknowledges this could change.

9. RSM Publications

To prepare your pension scheme for upcoming challenges and opportunities, we have produced a series of webinars and articles exploring some of the key issues currently affecting the sector.

Webinars that may be of interest in the past eighteen months, and are available on the link include:

Pension Scheme Governance

This looks at certain aspects of Pension Scheme Governance and suggests some actions that Trustees and their advisors might consider taking in preparation for compliance with the new Combined Code from the Pensions Regulator.

Interview with David Fairs at The Pensions Regulator

In this interview we discussed the introduction of new criminal powers, the new consultation on The Code and how climate change policy is affecting pension schemes.

Pension Schemes and Going Concern

This webinar looks at why going concern should be on the minds of trustees, and what that means in terms of their interaction with their auditor on the subject of going concern.

Coronavirus, TPR Annual Funding Statement and Covenant

This webinar looks into the TPR guidance regarding coronavirus, the practical steps and actions arising, and how it impacts covenant monitoring and assessments.

Cyber risk awareness

COVID-19 had forced organisations to shift rapidly to remote working at scale. This had a significant impact on both IT infrastructure requirements and the attack surface. As organisations become increasingly dependent on third parties and our expectations grow regarding having data at our fingertips, we are also widening the boundary of cyber risks and threats. This webinar looks at the impact on the pensions sector and why it is much more at risk than other industries.

In addition, recordings of the sessions from our Pensions Week 2023 covered a range of topics including:

What’s on the horizon in ‘covenant world’ in 2023?
An interview with The Pensions Regulator
Good governance: how are you managing your risks?; and
Pensions sector technical update.

Finally, back in early 2020 we released the results of our "Mind the expectation gap" survey. Also included is a webinar analysing these results and assessing the key areas that Trustee Boards need to consider.

Alternatively, our Pensions sector page which also includes details of all our other industry offerings is available.