The DWP has published an updated draft of the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024 (the “Regulations“) replacing the draft published on 29 January 2024. The updated Regulations clarify previous ambiguity in the timing of the changes being made. The new funding regime will apply to all actuarial valuations with an effective date on and after 22 September 2024.

The Pensions Regulator has also announced this week that the new defined benefit funding code of practice will be published in the summer.

In this Pensions Note, we look at the key changes being introduced and what steps trustees and sponsors should now take to prepare for the new funding regime.


The core elements of the Regulations remain unchanged from the consultation draft of the regulations. From 22 September 2024, trustees will be required to establish, as part of their statutory actuarial valuations, a funding and investment strategy (FIS) which sets out how their scheme will reach a ‘low dependency’ funding basis and be invested in ‘low dependency’ investments by its ‘relevant date’ when it has reached ‘significant maturity’. In most cases the FIS will need to be agreed with the schemes sponsor. The intention is that the scheme’s valuation assumptions and investment strategy should then be broadly consistent with the FIS.

During the consultation on the earlier draft regulations the DWP received a number of comments that whilst the overall objective (i.e. prudent “end-game planning”) was supported, the draft regulations were overly prescriptive, ignored open DB schemes, and could cause undue funding strain on employers. The DWP has taken on board many of these comments and has made changes to the Regulations which increase the flexibility of the new regime and clarify certain areas where concern had been raised.

In addition to the Regulations, the Pensions Regulator has also announced that the revised defined benefit funding code of practice (the “Code“) will be published in the summer, which will reflect the changes made to the Regulations. The intention is that the Code will have completed its Parliamentary approval process and will come into force from September, alongside the changes made by the Regulations. The Pensions Regulator will also be publishing updated “fast track” guidance and a template for the FIS.


What has changed?

Significant Maturity

It had originally been proposed that a scheme would be treated as significantly mature when the duration of its liabilities was 12 years or less. The DWP has hinted this may be reduced when the Code is published. The Regulations open the door for TPR to set out a range of options for determining significant maturity as TPR will have the power to set significant maturity as “the date [the scheme] reaches the duration of liabilities in years, or such other date, specified by the Regulator in a Code (and the Regulator may specify different durations of liabilities in years or different dates for different descriptions of schemes)” (emphasis added). The DWP has also set a fixed date (31 March 2023) for determining the economic assumptions used to calculate significant maturity to alleviate concerns that a duration measure could be overly sensitive to market fluctuations.

Relevant Date

The Regulations now expressly cater for open schemes which would not be able to determine their point of ‘significant maturity’ and ‘relevant date’. There was a concern that open schemes would have had to assume that they would imminently begin to mature, and plan accordingly, increasing the risk the schemes prematurely de-risking. Trustees of open schemes will now be able to take account of new entrants and future accrual in their scheme maturity calculations if these assumptions are reasonable and based on an assessment of the financial ability of the employer to support the scheme.

The Regulations also clarify the position for schemes which have already reached significant maturity. Their relevant date is now deemed to be the effective date of the valuation to which its funding and investment strategy relates.

Employer Covenant

Trustees must take account of the employer covenant when assessing the level of investment risk that a scheme can take on its journey plan to being significantly mature. This is now more clearly set out in the Regulations rather than left to the Code. At its core is the assessment of “the financial ability of the employer, in relation to its legal obligations to the scheme, to support the scheme“.  However, the trustees will also have to consider how long that they can be “reasonably certain” that they can rely on that support. There is likely to be fertile debate among covenant advisors on how this can be assessed and we hope the Code will provide more clarity.

Low Dependency Investment Allocation

The DWP has moved away from cash flow matching as the test for ‘low dependency investment allocation’. The Regulations now require schemes to invest in a way that “is highly resilient to short-term adverse changes in market conditions” so that further employer contributions are “not expected to be required to make provision for the scheme’s liabilities“. We await the Code for clarification on how TPR might regard ‘highly resilient’ and ‘short-term adverse change’, but this change will provide welcome flexibility. The Regulations also provide that surplus assets will fall outside of the low dependency investment allowance, giving trustees more scope to invest in productive assets, in line with the aims of the Mansion House reforms.

Trustee investment powers

The DWP has stated that the Regulations do not constrain the trustees’ power to decide on investments and although trustees and sponsors may agree on the funding and investment strategy, it is for trustees alone to decide on the actual investments made. However, the DWP has acknowledged that TPR will expect investment strategies to be broadly consistent with the funding and investment strategy, as the rationale behind the requirements for the funding and investment strategy should also underpin trustees’ actual investment decisions. We wait to see how far the Code will allow trustees’ investment decisions to deviate from the funding and investment strategy.

Liquidity Access

The draft regulations required trustees to invest in assets with sufficient liquidity to meet any unexpected costs for the whole period of the journey plan towards significant maturity. The DWP has decided to remove this requirement. Trustees will now only need to show how they have factored liquidity into their current strategy, thereby broadening the range of appropriate investment choices.

Recovery Plan

A recovery plan will have to be prepared on the basis that funding deficits are to be recovered “as soon as the sponsoring employer can reasonably afford”, but following feedback the Regulations have been amended to allow trustees to consider the impact of the recovery plan on the sustainable growth of the employer when determining if their recovery plan is appropriate. This aligns with one of TPR’s statutory objectives and will apply to recovery plans which relate to an actuarial valuation with an effective date on or after 22 September 2024.

Actuarial valuations with an effective date on or after 22 September 2024 will also need to contain the actuary’s estimates of scheme maturity, the maturity of the scheme as at the relevant date, the date that scheme is expected to reach (or has reached) significant maturity and the low dependency funding level. The actuary must use the assumptions chosen by the trustees for the purposes of the FIS for these estimates.


Next Steps for Trustees and Sponsoring Employers

We would expect schemes with valuation dates falling on or after 22 September 2024 to begin work now on preparing for the new regime if they haven’t done so already. We suggest some early steps to this effect:

  • Speak to your scheme or advising actuary to understand what changes may be needed for the valuation process and/or journey plan.
  • Consult your covenant adviser on the regime’s implications for your scheme.
  • Consult your legal advisers on how the Regulations will apply to your specific scheme.
  • Appoint a chair of the trustee board if one does not exist already. (The FIS must be signed by the chair of the board.)
  • Prepare for more detail to come in the DB Funding Code.

For further advice on these issues, please contact your usual HSF contact.


Samantha Brown
Samantha Brown
Managing Partner (West) of Employment, Pensions and Incentives, London
+44 20 7466 2249

Rachel Pinto
Rachel Pinto
Partner, Pensions, London
+44 20 7466 2638

Michael Aherne
Michael Aherne
Partner, Pensions, London
+44 20 7466 7527