Pensions: What’s New This Week – May 2023 | Allen & Overy LLP

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Welcome to our weekly updates from the Allen & Overy Pensions team. Covers all the latest legal and regulatory developments in the world of workplace pensions.

This week’s topics include: TPR issues new guidance on managing leveraged LDIs. TPR Corporate Plan Announces DB Funding Code Delay. TPR will issue his 2023 annual funding statement. HMRC Pension Scheme Newsletter. The Gender Pensions Gap: What it is and how to fix it – May 23, 2023.

TPR issues new guidance on managing leveraged LDIs

The Pensions Regulator (TPR) has issued new guidance for fiduciaries on risk management when using Leveraged Liability Driven Investments (LDIs).

In late 2022, regulators, including the TPR, issued guidance on managing GBP-denominated LDI risk. European regulators have said yield buffers of around 300-400 basis points have been built after fall 2022 volatility and reduced resilience of individual sub-funds of pooled funds is not appropriate . Previous guidance from the TPR stated that segregated leveraged LDI mandates and single-client funds face the same market risks and operational challenges and therefore should maintain the same level of resilience. I was.

The TPR has clarified in its latest guidance that the collateral buffer should consist of two elements:

  • An operational buffer sufficient to manage daily volatility in the market for a given LDI contract – TPR said this should at least reflect the volatility of gold coin yields under normal market conditions.and
  • Market stress buffer of (minimum) 250 basis points. The minimum market stress buffer assumes the trustee can provide additional cash or assets to replenish the buffer within her five days. If you need more time (or if the assets held in the buffer are more volatile than what is normally used), you may need a larger buffer. be appropriate.

The TPR’s new, more detailed guidance also outlines specific steps trustees should take when investing in LDIs.

  • Consider where the LDI fits into the scheme’s investment strategy.
  • Establishing, operating and maintaining a collateral buffer (e.g. agreeing in advance which assets to sell and in what order to raise cash to maintain the buffer as required, and entrusted sales authority) clearly defined and recorded);
  • Testing and monitoring the resilience of LDI investments and processes.and
  • Ensure proper governance and operational processes are in place.

Separately, the Financial Conduct Authority has issued guidance and recommendations for LDI asset managers.

Read TPR’s LDI Guidance.

Read the FCA’s Guidance and Recommendations for LDI Asset Managers.

TPR Corporate Plan Announces DB Funding Code Delay

The TPR’s latest Corporate Plan (2023-24) focuses on working with the Financial Conduct Authority and the Department of Work and Pensions (DWP) to develop a value for money framework, which will include new defined benefit funding. Confirming the start of the procurement code. Postponed to April 2024.

Other areas of focus include DC saver quality outcomes (including deductions), support for schemes to prepare connectivity to pension dashboards, and continued tackling fraudsters by the Pension Fraud Action Group. included. TPR will also consider whether each board of trustees should have a professional trustee and whether the professional trustees should be accredited or subject to an authorization process.

Read the corporate plan.

TPR to issue annual funding statement for 2023

Our latest Annual Funding Statement has been issued with the following key messages:

  • Improvements in funding levels are seen in many schemes (in which case trustees should consider whether to apply funding gains to reduce risk in their funding and investment strategies).
  • Schemes with lower levels of funding (including as a result of gold coin yield fluctuations in fall 2022) will need to reset their funding and investment strategies and review their governance processes in line with the new LDI guidance referred to above. there is.and
  • Schemes should avoid complacency when monitoring employer pledges (an update to the TPR guidance on monitoring employer pledges is expected later this year).

This statement applies to schemes with an assessment date between 22 September 2022 and 21 September 2023 and schemes undergoing significant changes requiring a review of their funding and risk strategies, It is particularly relevant for schemes that have received a reduction request. Contingent asset arrangements and proposals for other uses of surplus funds, including requests by Members for any increase.

This would require consideration of alignment with key principles for scheme options where funding is currently at or above the buyout level, and for schemes where funding levels are above technical provisions but below buyouts. Includes commentary on rethinking funding strategies, including expectations that Have a draft funding code and/or ‘ready for insurance’. It also presents his TPR views on rethinking investment strategies, covenant considerations, and other factors including longevity and inflation. It also highlights the potential risks associated with refinancing sponsor debt facilities and how trustees should respond to this. As in previous years, this statement includes a table showing his TPR’s main expectations for the scheme in different circumstances, depending on the characteristics of the scheme and the employer.

Read the Annual Statement of Funds.

HMRC Pension Scheme Newsletter

HMRC has published its latest Pension Scheme Newsletter (No. 149) and (as reported two weeks ago) announced in its Lifetime Allowance (LTA) Newsletter on 27 March 2023, Identified changes to how benefits and unvested funds are defined. Payment of the lump sum death benefit will not proceed. Instead, the scheme can continue to use its current process for taxing those payments until HMRC establishes a long-term position for the repeal of his LTA.

The newsletter also contains reminders of annual return filing deadlines for schemes using withholding relief. Information for filing a pension plan return either at Pension Plan Online or Pension Plan Administration Service.

Read our newsletter.

The Gender Pension Gap: What It Is and How to Fix It – May 23, 2023

The gender pension gap (the difference between men and women’s pension income expectations in retirement) is estimated to be twice as large as the gender pay gap. Why is that and how can we close the gap?Stuart Murphy, his DC Co-Head of Legal & General Investment Management (LGIM) and Alexandra, Senior DC Strategist, on Tuesday, May 23, 2023 We welcome Miles to discuss gaps and what can be done about them. deal with it.

Sign up here.

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