The possibility of a Pensions Bill in the next parliamentary session should provide clarity on the funding framework for defined benefit (DB) schemes.

The Government’s white paper in March 2018 proposed that the Pensions Regulator should issue a revised code of practice focusing on how prudence is demonstrated when assessing scheme liabilities, appropriate factors for recovery plans, and ensuring that a long-term view is considered when setting the funding objective. Some or all of the funding standards contained in this revised code would be given statutory force.


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Recent determinations of the Pensions Ombudsman¹ have considered the extent to which employers should provide information on pension rights to employees who have notified them of a terminal illness.

The law

There is no general duty on employers to advise employees about their pension rights, or to safeguard employees’ economic well-being. Indeed, the law prohibits anyone other than a person authorised by the Financial Conduct Authority from advising on pension rights.

However, a distinction should be drawn between “advising” and “providing information”. In some situations the law imposes specific duties on employers to provide information about pension rights to employees. When the law is silent, however, getting things right can be tricky.


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Mayer Brown’s UK Pensions Group has launched a monthly video series providing a snapshot of recent developments and issues of current importance in the UK pensions industry. In the first episode, available on our YouTube channel, partner Richard Goldstein looks at the issue of DB superfunds and, in particular, the UK government’s recent consultation

We recently advised a pension scheme on a buy-out of its defined benefit (DB) liabilities with an insurer. In the run up to the transaction, the employer and the trustees looked very carefully at whether the scheme had enough assets to make the transaction possible. It was touch and go, but in the end the assets were just enough.

This made me think about how important taking benefit de-risking action as part of the journey to full funding can be. On its own, each benefit de-risking step does not have a transformative effect on funding. But, as part of a wider programme of funding and investment action, benefit de-risking can make the difference between getting to 100% funding on a buy-out basis and not.


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Guaranteed minimum pension (GMP) conversion offers the opportunity for defined benefit schemes to simplify their benefits, potentially saving costs and making schemes more attractive to be bought out with an insurer.

Age-old question

One of the great unanswered questions of pensions law has finally being answered. In October last year, the High Court in the Lloyds Bank case determined that pension schemes have to equalise for the effect of GMPs. As part of the judgment, the Court confirmed the effectiveness of the GMP conversion legislation issued by the Department of Work and Pensions (DWP).

Also, in a follow-up judgment, the Court confirmed that GMP conversion, known as the “D2 method”, can be used as a route to achieve equalisation. This effectively allows a scheme to pay the higher of two amounts, based on the value of the member’s GMP and an opposite sex comparator’s GMP, rather than run on dual records for service between May 1990 and April 1997.


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Five years ago the pensions world was rocked by George Osborne’s Budget announcement:  DC members would no longer be forced to buy annuities.

Under his “freedom and choice” initiative, tax rules were changed so that DC pots could be used to provide lump sums or drawdown.  At the same time, Pension Wise was introduced – free guidance for DC members about their benefit options.  Later changes to tax law mean that, subject to certain conditions, members can use their DC savings to pay for financial advice.


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Defined benefit (DB) pension schemes promise their members a pension for life. However, while one member may live to age 75, another might live to age 95. When working out how much money a DB scheme needs to fund the benefits it has promised members, trustees (or rather their actuarial advisers) therefore have to make an assumption about how long, on average, members will live – a longevity assumption.

If that longevity assumption proves to be incorrect and the scheme has to pay benefits for longer than expected, the trustees will need to find additional money to fund those benefits. And usually they will look to the scheme’s sponsoring employer for that money.

Finding ways of managing a scheme’s longevity risk is therefore beneficial for both the trustees and the employer. One way of doing this is a transaction called a longevity swap. Between 2009 and 2018, nearly 50 pension schemes entered into longevity swaps, including schemes sponsored by Astra Zeneca, AkzoNobel, BA, BAE Systems, BMW, BT, Heineken, ITV and Rolls-Royce.


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Recent intervention by the Competition and Markets Authority could lead to increased competition in the market for investment professionals who provide services to pension schemes – which should be a good thing for the employers supporting those schemes.

Many occupational pension schemes use the services of investment consultants and / or fiduciary managers.  Broadly, investment consultants advise pension scheme trustees on how best to invest scheme assets – and fiduciary managers make investment decisions on behalf of pension scheme trustees.


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On 6 April, the quality requirements that pension schemes being used for automatic enrolment (“qualifying schemes”) must meet are changing.

DC schemes – what’s changing?

At present, for a DC scheme to be a qualifying scheme:

  • The employer must make a contribution of at least 2% of the worker’s qualifying earnings.
  • The total contributions paid

Superfunds are a hot topic right now in the pensions industry. A consultation on the regulation of superfunds has recently closed, and a response from the Government is expected in the near future. But what are superfunds, and why might they be of interest to an employer with a defined benefit (DB) pension scheme?

What is a “superfund”?

  • A superfund is an occupational pension scheme which will, at a cost, accept a transfer of assets and liabilities from a DB pension scheme.
  • It’s a relatively new concept – there aren’t currently any operational superfunds, although market entrants are actively seeking business.
  • The entity running the superfund will be aiming to make a profit and distribute returns to external investors.  The expectation is that this can be achieved through cost efficiencies, better access to investment opportunities and the pooling of risk.
  • They will be regulated by the Pensions Regulator (although the authorisation framework is not yet in place) and the intention is that they will be eligible for the PPF.


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