We can only assume that the pensions industry at large put “a busy and unpredictable 12 months” at the top of its wish list at the start of the year, and 2022 certainly delivered. From the sombre to the unprecedented, 2022 had it all.
The year was bookended by investment issues. In February, the Church of England Pensions Board disinvested from Russian assets in response to Russia’s invasion of Ukraine. Russian investments were boycotted by several other prominent UK pension funds in the days and weeks following the invasion, including the TFL Pension Fund and the Universities Superannuation Scheme. By the Autumn, investment turmoil had moved onto home soil with the Government’s Growth Plan 2022 which shocked markets and caused chaos for defined benefit (DB) schemes with liability driven investment (LDI) strategies (which can read more about here).
But what does 2023 have in store for us?
Investment and scheme funding
Investment looks set to retain its place at the top of trustee agendas for much of the year. The Work and Pensions Committee is still investigating the circumstances that let to the LDI crisis in September 2022, but there have already been calls for greater transparency and increased regulation by the Bank of England and the Financial Conduct Authority. As Heather Chandler predicted in our recent podcast episode, we could also see some litigation arising from the fall out of the LDI crisis in 2023.
In addition, we are expecting significant changes to the DB funding regime, and a revised DB Funding Code from the Pensions Regulator (TPR), the latest draft of which was published for consultation on 16 December 2022. The new regime will require trustees to determine a long-term funding goal and target a low dependency investment position which is highly resilient to short-term adverse changes in market conditions. The regulations bringing about the change are not yet finalised, but things could move quite quickly in 2023.
Surplus
At the more optimistic end of the DB funding scale, 2022 saw many DB schemes tipping into a funding surplus. The Pension Protection Fund’s 7800 Index, which estimates the funding position of DB schemes eligible for entry into the pensions lifeboat, recorded a funding surplus across those schemes of £313.8 billion in August 2022 (up from £254.3 billion in July 2022).
Improved funding positions ought to make funding discussions easier in 2023, but there is likely to be a need for compromise between trustees and employers over the short-term position and longer-term objectives. It is also likely to lead to accelerated buy-out timescales, and we already seeing some employers adopt escrow arrangements to manage pension scheme funding whilst those projects progress, to avoid a build-up of surplus now which might be difficult to deal with later.
Shoosmiths lawyers Suzanne Burrell and Kim Muddimer will be delivering a webinar on the practical issues surrounding scheme surplus on 6 July 2023.
Pensions dashboards
Pensions dashboards will finally be with us in 2023, and the project promises a very busy time for trustees. The UK’s largest pension schemes are due to connect to the dashboards digital infrastructure at the end of August 2023 and from then, a new wave of schemes will connect every month (subject to a couple of breaks) until October 2025.
The Money and Pension Service (MaPS) will establish the first dashboard, but the general public will not be able to access it straight away. It will only become available at what the legislation calls the “Dashboard Available Point” which the DWP will specify, but it must give six months’ notice. The MaPS dashboard isn’t ready yet, so it seems unlikely that the DWP will announce the Dashboard Available Point very early in 2023. Once it does though, that six-month period is likely to feel very short. As connection dates approach, trustees will need to make sure their scheme data is dashboard ready and that they know how to comply with their dashboard duties.
Notifiable events
Section 69A of Pension Schemes Act 2021 will, when it is eventually in force, introduce a new two-step notification process for certain employer related notifiable events. The process will require employers to provide TPR with an initial written notice at a much earlier stage than is currently required, followed by a further notice later on in the life of an affected transaction. You can read more about the changes here.
We’ve been waiting for clarity since a consultation on draft regulations setting out details of the affected events and the thresholds which trigger the notification requirements closed on 27 October 2021.
The reason for the delay unknown. Pensions regulations ordinarily come into force in either April or October each year, but the October 2022 window was eclipsed by government upheavals and the LDI crisis, leaving employers who sponsor DB schemes with no certainty over which activities will be caught for over a year. April 2023 is therefore the earliest we will see the regulations come into force, however given the DWP’s silence on the matter, October 2023 could be the more realistic timeframe.
Find out more
Listen to the Shoosmiths pensions team talk about these predictions for 2023 and others (including TPR’s consolidated code, forfeiture, consolidation, auto-enrolment and more) in episode 6 of their podcast of Shoosmiths on TAP.
