The Pensions Regulator published its DB funding code in final form on 29 July 2024.  The code and related documentation, together with the related scheme funding regulations, flesh out the detail of the requirement introduced by the Pension Schemes Act 2021 for defined benefit schemes to have a formal funding and investment strategy.  

The key principle of the funding regime is that a scheme should have reached a state of low dependency on the employer by the time the scheme is "significantly mature".  A scheme reaches "significant maturity" on the date it reaches the duration of liabilities in years specified by the Pensions Regulator (TPR) in a Code of Practice.  The regulations define the duration of liabilities measure as the "weighted mean time until the payment of pensions and other benefits under the scheme, weighted by the discounted payments".  The final form code provides that the duration of liabilities at which a scheme reaches significant maturity is 10 years (or 8 for cash balance schemes).  The draft code had proposed a figure of 12.

There have been various other changes to the code compared to the version published for consultation.  These include:

• a broadened definition of "matching assets" for the purposes of "low dependency investment allocation" (LDIA) and less prescription around how trustees should test high resilience of their LDIA;
• a revised definition of "small scheme" for the purposes of adopting a simplified approach to projecting the date of "significant maturity".  A scheme will be treated as a "small scheme" if it has 200 members or fewer at the valuation date.  (Certain members are excluded for this purpose, eg fully insured annuitants not included in the calculation of liabilities for technical provisions purposes);
• greater flexibility for assumptions made by open schemes regarding the period for which future accrual will continue and the scheme will admit new entrants;
• explicit recognition that a full assessment of each employer's covenant may not be necessary for multi-employer schemes to achieve compliance with the objective of the legislation; and
• changes that directly reflect changes to the scheme funding regulations that have been made since the consultation on the first draft of the code.

Alongside the Code, TPR also published its response to its Fast Track and regulatory approach consultation.  "Fast Track" is TPR's "regulatory filter" for its assessment of valuations.  Where a valuation meets TPR's Fast Track parameters, TPR is unlikely to scrutinise it further.  Appendix 1 to TPR's response sets out the tests and conditions a scheme must satisfy to meet the Fast Track parameters.  TPR estimates that as at March 2023, 62% of schemes met the Fast Track parameters.

The new funding regime applies to actuarial valuations with an effective date on or after 22 September 2024.  (Due to delays resulting from the General Election, the Code will technically come into force at a slightly later date.  However, given the typical time lag between the effective date of an actuarial valuation and that valuation being signed off, this seems unlikely to be an issue in practice.)