Statement of strategy consultation response

The response to our consultation on the statement of strategy that trustees will need to submit as part of planning and managing their defined benefit scheme funding.

Published: 28 May 2025

Introduction

The statement of strategy forms part of a package of measures designed to support trustees in planning and managing their defined benefit (DB) scheme funding over the long term.

It outlines the trustees' approach to funding and risk management and is made up of two parts:

• Part 1: the funding and investment strategy, which generally requires employer agreement.
• Part 2: supplementary matters, which requires consultation with the employer.

On 5 March 2024 we launched a public consultation on our approach to the statement of strategy, which included the following proposals:

• The statement of strategy would be in a standard form and follow a set template, which we would provide.
• Separate templates would be produced to reflect different information requirements depending on whether a scheme has reached the 'relevant date' and if it has chosen to adopt a 'Fast Track' or 'Bespoke' approach.
• The data we expected to collect through the statement of strategy, including that we would request less information from smaller schemes.

The consultation received 55 responses. Respondents included industry groups, actuarial, covenant and legal advisors, and individual lay trustees representing small schemes.

We have carefully considered all feedback. On 23 September 2024 we published our interim response to the consultation along with a package of supporting documents, including revised templates and information to assist trustees with meeting their obligations. In this response to the consultation, we set out more fully the key themes identified in the responses to the consultation and how we have sought to address concerns raised. It also summarises the responses to the individual questions we asked in the consultation.

Digital service: Submit a scheme valuation

Alongside this consultation response we are launching the new 'Submit a scheme valuation' digital service, which trustees will use to complete and submit their statement of strategy.

We recognise that, as we request more data, the method we establish to collect it should be as efficient as possible, limiting the burden on trustees. Therefore, while developing the new service we have sought to meet the needs of those who will be using it.

We have undertaken extensive user research over more than two years. During that time, we have spoken to over 110 people across 40 different organisations ranging from small to large firms. The digital solution has been developed and enhanced based on the feedback we have received from this user research and in response to this consultation. We will continue to develop and improve the service based on further user research and testing.

Respondents to this consultation indicated that the service should be easy to use. They also highlighted that the process for submission, resubmission or amendment should be as straightforward as possible. A significant number suggested that the method for collecting the data should be a spreadsheet. The reasons given included that users would expect to use spreadsheets to gather such information and that they could more easily share worksheets with colleagues and advisers to provide the data.

We tested various potential methods for trustees to collect and submit the required data and information, including web-based forms, spreadsheets, and a hybrid model. We also reviewed the methods used by those with similar data requirements in other organisations. After completing this research, and having considered all the feedback received, the first iteration of the service will use a dynamic spreadsheet to collect data. With the help of people across the industry, we have developed it to be:

• easy to use
• support existing ways of working
• enable collaboration with colleagues and professional advisers
• streamline the process of submitting data to us
• enable trustees to easily review and sign off on their statement of strategy

We have aimed to limit the burden on trustees by reducing the amount of data to be provided by some schemes, for example low-risk schemes and small schemes. We have therefore developed the spreadsheet to ask different questions depending on the answers given. For example, trustees of schemes that meet the small scheme definition will be asked different, and fewer questions, than trustees of schemes that do not.

We have already published the illustrative statement of strategy templates, which set out the data that will need to be provided in the final statement of strategy spreadsheet.

We are now providing the statement of strategy spreadsheet as part of our new 'Submit a scheme valuation' digital service. This service – developed with the help of people across the industry – will enable trustees to submit their statement of strategy and actuarial valuation to us. Trustees of schemes that are in deficit will also use the service to provide us with a copy of their schedule of contributions and recovery plan.

Use of information

Some respondents questioned whether The Pensions Regulator (TPR) will have a system to analyse and store the information collected. They also noted the need to adhere to the General Data Protection Regulation principles.

The process of developing the 'Submit a scheme valuation' service includes developing systems to analyse and store the data received.

TPR's internal policies and guidance are designed to ensure that compliance with data protection legislation and the protections for information defined as 'restricted' under the Pensions Act 2004 are strictly adhered to. We do not expect any changes to how we manage access to data.

Some respondents argued that TPR should be able to demonstrate the required information is necessary to assess compliance with legislation.

The content of the statement of strategy is prescribed by legislation, although TPR has some discretion over the level of detail to be provided in 'Part 2' (supplementary matters) and also prescribes the form of the document. In exercising those powers, we have sought to strike the right balance between being proportionate and obtaining the information we need to regulate effectively.

TPR's objectives include protecting the benefits provided under occupational pension schemes and reducing the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund. The information collected via the statement of strategy will enable us to consider a scheme's funding and investment strategy and assess the risks being run. We will have clarity up-front on funding and investment decisions being made by trustees and employers and the level of funding risk being carried by schemes. The information should also support our ongoing understanding of the DB pensions landscape including as it changes over time. And the discretion to ask for different levels of detail from different schemes in Part 2 of the statement of strategy allows us to adapt our approach to take account of changing circumstances where it is appropriate.

It was also suggested that the increased information provided by the statement of strategy could enable TPR to publish more aggregated and anonymised information about the pensions landscape.

TPR already publishes some research and analysis relating to DB pension schemes, for example our annual scheme funding analysis. The increased information available to us through the statement of strategy should enhance our analysis over time. We will consider whether there are other ways we can publish information about the pensions landscape with a view to enabling more detailed comparative analysis and benchmarking.

Smaller schemes

Definition

In our consultation document, we proposed reducing the level of information required in the statement of strategy for smaller schemes. This was because we recognised that the potential burden and additional costs of compliance would often be significantly larger for smaller schemes when considered as a percentage of scheme liabilities or assets.

We had proposed using two definitions for smaller schemes, depending on whether we were requesting actuarial or investment information. That approach was designed to be consistent with existing data and legislative requirements for smaller schemes.

However, a significant number of respondents disagreed with the two definitions proposed, with many suggesting there should be only one definition, and mixed views about what that definition ought to be. Respondents also shared views about the most appropriate definition of members (where a small scheme is defined by reference to the number of members).

Considering the views expressed in the responses to the consultation, we decided that it would be clearer to provide one definition for small schemes to be used for all purposes of the statement of strategy. There will be reduced information requirements under 'Part 2' (supplementary matters) of the statement of strategy for schemes that meet the following definition of 'small scheme':

"Those with 200 members or fewer, excluding members who are eligible for lump sum death benefit only, for hybrid schemes those members with defined contribution (DC) benefits only and fully insured annuitants where they are not included in the calculation of the technical provision liabilities."

Actuarial information for smaller schemes

In our consultation we proposed several easements in respect of the actuarial information to be provided by small schemes. Small schemes will continue to benefit from such easements. Specifically, they will be allowed to provide single equivalent term-dependant assumptions rather than forward rates over a number of years and have the option not to provide benefit cashflows.

We expect that, as a result of the revisions made to the definition of 'small scheme', these easements will now apply to many more schemes such that over half of UK DB schemes will not be subject to the requirement to provide benefit cashflows and term-dependant assumptions (based on modelling as at 31 March 2024).

Investment information for smaller schemes

In our consultation, we proposed that schemes with section 179 liabilities of less than £30 million would provide simplified strategic asset allocation information. This proposal was designed to broadly align with the approach in the scheme return, where the level of detail required in relation to the actual investment allocation breakdown is split into three tiers, based on the level of section 179 liabilities (see our scheme return guidance). In the scheme return, schemes with less than £30 million in section 179 liabilities are in 'Tier 1' and provide less detail than schemes in tiers 2 and 3.

However, a number of respondents highlighted that strategic asset allocation decisions are not frequently made at the level of granularity seen for the Tier 2 and 3 breakdowns, making the provision of the strategic asset allocation in such granular terms burdensome for most schemes.

We have, therefore, simplified the information requirements for strategic asset allocation so that all schemes will only have to provide information equivalent to a slightly simplified version of the 'Tier 1' asset breakdown. The language has also been amended to be consistent with TPR's new Defined benefit funding code of practice dated November 2024 (the code), so what was referred to in the consultation as 'strategic asset allocation', is now referred to as 'notional investment allocation'.

Covenant information for smaller schemes

In our proposed approach to covenant set out in the consultation, we did not differentiate between schemes based on their size, only on whether a submission was Fast Track or Bespoke.

We proposed that all schemes should provide an outcome of their assessment of covenant which referenced maximum affordable contributions, with a much-reduced level of evidential detail for schemes submitting a Fast Track valuation.

Several respondents suggested that providing a value for maximum affordable contributions should not be required for Fast Track submissions, highlighting the complexity of obtaining this number. It is important that schemes submitting Bespoke valuations provide us with the evidence to support their approach to assessing the covenant. However, for small schemes submitting a Fast Track valuation, we recognise that we are unlikely to engage on the valuation.

We have therefore changed the wording referring to the 'outcome' of the covenant assessment in the statement of strategy templates. This is now a simple statement of whether the strength of the employer covenant is adequate by reference to the actuarial valuation to which the funding and investments strategy relates. While all schemes will be required to provide this assessment of covenant, small schemes that meet the Fast Track parameters will not be required to submit any detailed covenant information as evidence of their assessment and so will not be asked to provide details of maximum affordable contributions.

The statement of strategy proposed templates

In the consultation we set out our proposal to have four pre-defined templates split by pre- and post-relevant date and Fast Track and Bespoke.

Respondents generally agreed with the proposal to have pre-defined templates, with most responding overwhelmingly in agreement with the proposal.

However, many respondents felt the templates did not suit all circumstances with almost all believing that the templates did not address all scenarios. There were comments that they were not suitable for open schemes and that they did not sufficiently address more unusual scenarios such as Guaranteed Minimum Pension (GMP) underpin schemes and cash balance schemes.

Many respondents also suggested that the completed statement of strategy would not be used for many of the purposes we articulated in the consultation. Respondents specified that it was unlikely it would be useful as a risk management tool or for facilitating engagement between trustees and employers.

We received responses suggesting that the document was too long and detailed to be useful as a document for sharing between trustees and employers to facilitate engagement. Some suggested advisers would need to generate their own more concise version for this purpose or suggested that the template we provided could be made more concise with much detail provided in appendices. Narrative in the templates which referenced the legal requirements was criticised as unnecessary, and in some cases unhelpful. It was also highlighted by some respondents that duplication with information collected elsewhere, for example in the scheme return, should be avoided.

A few comments were also received that the information requested in the templates went beyond the legislative requirements and, in respect of 'Part 1' (funding and investment strategy), it could be difficult to obtain the employer's agreement to some of the information because it related to a period of time in the future which is more uncertain. Concerns were raised with the level of detail being asked for in the 'journey plan' section of the template about assumptions.

It was also highlighted that not all schemes will need employer agreement to 'Part 1' and so the templates should be revised to allow trustees to flag this where only employer consultation is required under the legislation.

We have carefully considered the comments made about the information requested possibly exceeding the legislative requirements and, considering the adjustments that have been made in response to the consultation, are satisfied that this is not the case. As explained above, the content of the statement of strategy is prescribed by legislation, but TPR has some discretion over the level of detail to be provided in 'Part 2' (supplementary matters) and prescribes the form of the document. We are exercising these powers in prescribing the templates, which are also designed to assist compliance, and supported by the feedback received.

We have, however, simplified the templates to remove some of the information required for all schemes, much of the narrative explaining the legal requirements, and have moved some of the more detailed information into appendices.

With respect to information collected elsewhere, it is our intention to review the information captured via the scheme return with a view to removing any unnecessary duplication over time.

We have also worked to ensure that the templates are suitable for open schemes and for unusual scenarios or non-traditional DB schemes such as GMP underpin and cash balance schemes. In particular, we have made changes to the section referencing the long-term objective with a view to ensuring it works for open schemes. We have also increased the number of optional free text boxes to allow for additional comments so that trustees can, if they wish, provide further detail about the individual circumstances of their scheme. We have not therefore considered it necessary to create additional templates for use by these types of schemes.

In respect of matters that require employer agreement under 'Part 1', we have not considered it necessary to alter the substance of the templates based on any uncertainty regarding future events. This is because it is understood that much of the information contained in 'Part 1' relates to the trustees' expectations, which will be subject to change with each subsequent valuation. We have, however, added some text to the templates so that schemes can make clear if employer agreement was not legally required to 'Part 1' based on their scheme’s circumstances but that the employer was consulted.

Low-risk schemes

Our consultation did not propose any differentiation in the information required of schemes based on their funding position.

Many respondents referred to the overall improvement in funding levels across the pensions universe and suggested that the breadth of information requested did not take this into account. Responses suggested a reduced information requirement would be appropriate for schemes that are particularly low risk, for example, because of their positive funding position on a prudent basis. It was also suggested that there ought to be different information requirements for schemes which meet some but not all the Fast Track parameters.

Some respondents thought that detailed covenant information should not be required once a scheme has reached its relevant date and is well funded on a low dependency basis.

We recognise that, in some circumstances, the positive funding position of a scheme means that it represents a relatively low risk such that it may not be appropriate to require it to provide as much information as part of its statement of strategy. In particular, we consider that this would be the case in respect of schemes which have a very low dependency on the employer covenant, even after a significant adverse event.

Taking this into account, we have defined low risk schemes as those that meet the following criteria:

• Schemes that follow a Fast Track approach and would be in surplus on a low dependency funding basis after applying an immediate Fast Track stress test.
• Schemes that follow a Fast Track approach and where full benefits for all members have been secured with an insurer.
• Schemes that follow a Bespoke approach which have reached their relevant date and would be in surplus on a low dependency funding basis after the application of an immediate stress test.

For schemes that meet these criteria, we have removed the requirement to provide any detailed information about employer covenant from the statement of strategy. Asset backed contributions information will still be required but is now only referenced in the investment section. This is in recognition that these schemes have limited reliance on employer covenant.

Long-term objective

Many respondents indicated that a scheme may have a long-term objective different from the options provided for in the template and that some of the options listed could be subject to interpretation based on how they were drafted. In addition, a few respondents were concerned that the format in which the response was expected to be provided could suggest that a legally binding commitment had been given by the employer to the scheme’s end game, which could have unwanted accounting implications and suggest that the objective could not be changed later as permitted by the legislation.

It is particularly in respect of open schemes that the options provided for in the template were deemed to be inadequate. Some respondents argued that for schemes which intend to remain open indefinitely, the low dependency target and long-term objective may, in practice, be a contingency plan for the eventuality that circumstances change. Suggested alternative long-term objectives to the options provided included a flexible long-term objective, or an intermediate target.

We recognise the concerns expressed about how the long-term objective was captured in our consultation proposal. We also recognise that, since the publication of the statement of strategy consultation, the code has evolved to introduce greater clarity about the interaction between the long-term objective and low dependency target. The final code, which came into force on 12 November 2024, highlighted, for example, that for open schemes which do not intend to close, the low dependency target and long-term objective may not align.

We have therefore changed how we will capture the trustees' long-term objective by providing a free text box rather than a defined set of choices. This will enable schemes to better communicate the nature of their long-term objective in a scheme-specific way.

Long-term investment strategy

In the consultation we proposed that the information to be provided on the trustees' intended investment allocation at the relevant date include splits of expected assets into the following three categories:

• Growth: assets that do not have stable and predictable cashflows (in either nominal or real terms). Examples given were equity portfolios, absolute return funds, other hedge funds, most property assets, and many infrastructure assets.
• Matching: these are either cash and money market instruments or assets with fixed or inflation-linked cashflows which have a high degree of certainty. Examples given included nominal gilts, index-linked gilts and sterling-denominated investment grade corporate bonds.
• Hybrid: these include a proportion of matching assets and a proportion of growth assets.

While most respondents agreed that 'growth' and 'matching' were appropriate categorisations to describe an intended investment allocation at the relevant date, several respondents noted that 'hybrid' was not an industry-standard categorisation. Based on this feedback, we have now removed the 'hybrid' category.

A number of respondents highlighted that it would be important to provide clear guidance about how assets should be categorised. We published updated guidance in the data guidance and reference document which accompanied the interim response we published in September. This included more information about how diversified growth funds should be categorised.

Some respondents also noted that they do not generally have a distinct plan for investing surplus assets at the relevant date. We have therefore made the provision of details about how surplus assets will be invested as optional. The section can therefore be omitted if there is no distinct plan for surplus. However, it will remain available for use by schemes that do have a specified plan in place to allocate their surplus investments at the relevant date which is different to that used to match 100% of the liabilities.

Current funding position

Some respondents highlighted that including the buyout funding level in the funding and investment strategy could present problems for employer agreement. The importance of consistency in terminology, and potential issues with obtaining a 'buy-out' as opposed to a 'solvency' figure, was also highlighted.

In response to this feedback, we have removed the requirement to provide a solvency funding level in the funding and investment strategy. However, this information requirement has been retained in 'Part 2' (supplementary matters), which does not require employer agreement.

We have also amended the terminology used throughout the statement of strategy to refer to the 'solvency' basis rather than the 'buy-out' basis.

Journey plan

General

While there was general agreement that the standard wording proposed to outline the funding journey plan in the funding and investment strategy was adequate, some respondents did highlight a few concerns. These included the lack of clarity on what wording was optional, concerns that the proposed wording was too inflexible, and some even questioned the need for wording to outline the funding journey plan. Some also noted that the legislation requires consistency between the technical provisions and low dependency bases, while the wording referred to convergence. Other respondents suggested that the differences between assumptions used to calculate technical provisions (TPs) and low dependency funding basis (LDFB) should be provided in a list.

Recognising these points, we have significantly simplified the wording relating to the funding journey plan and introduced additional flexibility by introducing free text boxes. We considered that a list setting out the differences between assumptions would not be practical.

Discount rates: methodology

There was general agreement that the options provided covered most discount rate approaches commonly used. Some respondents highlighted that there are other approaches which may become more popular in the future such as asset liability modelling, and that the options provided may not be suitable if a scheme is cashflow driven. Some highlighted alternative discount rate methodologies which are also commonly used.

Based on this feedback, we now include 'multiple horizon' and 'dynamic discount rates' as additional discount rate methodology options. We are comfortable that alternative approaches can be captured using the 'other' category.

Underlying yield curve/single yield information

A number of respondents highlighted corporate bond yields or a combination of corporates and gilts as an alternative underlying yield curve used by schemes when setting technical provisions and determining the low dependency funding basis. We have therefore added 'composite' as an alternative option to capture these, along with an additional free text box for explanation where the options provided do not capture the approach taken.

Some responses also highlighted that the same curve may not always be used for calculating both the technical provisions and low dependency bases. We have therefore added an additional question to confirm whether the same curve has been used. Where the same curve has not been used, we are only asking trustees to provide the underlying curve for the technical provisions basis and not the low dependency basis as well.

Some respondents questioned the need to provide 100 years of forward rates for underlying yield curves and the addition/premium. We have reduced the requirement to 40 years of forward rates for all schemes which provide forward rates rather than single equivalents.

Other financial information

A number of respondents disagreed with our proposal to collect inflation (RPI and CPI) and pay increase forward rates, on the basis of the cost of production and the expected limited value these would provide to TPR. To address these concerns and improve the value of the information we collect relating to inflation, we have made the following changes to the information requests:

• reduced the number of years of forward rates for RPI, CPI and pay increases to 40 years
• included two additional questions to understand the liability sensitivity to changes in inflation assumptions

The additional questions relating to sensitivity to inflation form part of the summary of the actuarial valuation section in 'Part 2' of the statement of strategy. We would expect this information to be included in valuation reports and so we do not consider that providing it should impose undue additional burden for schemes. It will, however, increase the usefulness of the information we collect relating to inflation.

Some respondents suggested we should collect deferred revaluation and pension increase assumptions as this would be more useful to us, and show any caps and collars applied. However, given the range of different benefit structures and limited information we hold on pension tranche splits, to collect and process this information in a meaningful way would result in a significant level of data and assumptions being requested. We therefore concluded that this would be a disproportionate burden.

Demographic information

Some respondents questioned whether the benefits of providing the requested commutation information were commensurate with the associated costs of producing it.

In response, we have significantly streamlined the required information relating to commutation. We decided against including a free text box for comments on specific circumstances, as we concluded we would not need this level of detail.

While some respondents suggested that we might ask for more information relating to mortality, most agreed with our proposed approach. We consider that our proposed approach is appropriate and so no changes have been made to this section.

Actuarial information

Benefit cashflows

A number of responses to the consultation suggested cashflows were relatively straightforward to produce but some questioned whether providing cashflows was necessary to demonstrate how maturity would change over time. It was queried whether TPR would use cashflows for other purposes, and pointed out that, as maturity is calculated by reference to economic assumptions as of 31 March 2023, cashflows for the purpose of demonstrating maturity would not be the same as technical provisions cashflows as at the valuation date.

It was also suggested that TPR was requesting information beyond the legislative requirements. In particular, it was noted that the legislation only requires trustees to explain how maturity is expected to change over time if the scheme has not yet reached the relevant date.

The volume and granularity of cashflows requested was also considered burdensome and some additional concerns were expressed about the lack of clarity regarding the format in which the information would need to be provided and the risk that this will not be straightforward.

Scheme cashflows are relevant to understanding a scheme's maturity. However, they are also important to understanding a scheme's liquidity needs, and to determining what level of funding and investment risk may be appropriate over the course of a scheme's journey plan. We will, therefore, reference them for more than one purpose, and consider that they could fall into several different sections in the statement of strategy.

We had proposed that scheme cashflow information be provided as part of the funding and investment strategy in 'Part 1' of the template, as evidence of how the maturity of a scheme that had not yet reached its relevant date will change over time. However, having considered the comments received, we have concluded that this level of detail is not required to demonstrate how maturity will change over time, and this is not the right place to include cashflows in the statement of strategy.

We have therefore adjusted the template so that:

• where a scheme has not yet reached its relevant date, trustees will evidence how scheme maturity will change over time by reference to the actuary's estimates of maturity at the effective date and relevant date, and of the date of significant maturity
• the benefit cashflows used to calculate technical provisions will be provided as part of the summary of the actuarial valuation in 'Part 2' of the template. We have concluded that this is the more appropriate home for cashflow data, as this reflects how cashflows are an integral part of determining the technical provisions. It also means that cashflow data will now fall into 'Part 2', which does not require employer agreement

In addition, recognising that respondents did highlight that the provision of cashflows could prove burdensome for some schemes, we have significantly reduced the information requirement relating to cashflows by:

• removing the requirement to submit cashflow information for small schemes – this also recognises the possibility that, for some very small schemes, cashflows may not be produced as a matter of course for the purposes of the actuarial valuation
• removing the requirement to submit cashflow information for all schemes using the Fast Track approach
• changing the data requirement to 40 years of cashflows rather than 100 years
• collecting just one set of cashflows in relation to total accrued benefits on a technical provisions basis – so we are no longer requesting cash flows in respect of future service. However, for schemes open to accrual, we are instead requesting the total pensionable salaries and future service contribution rate as at the effective date of the valuation

Employer expenses

It was highlighted in some of the responses that the allowance for future scheme expenses was not captured. For that reason, we have included within the summary of the actuarial valuation a free text box to provide additional narrative commentary about expense reserves, if appropriate.

Recovery Plans

While most respondents agreed in general with our proposal to capture recovery plan information, including that relating to post valuation experience, some expressed concern about the level of detail. For example, it was noted that there are different approaches to calculating and reflecting investment outperformance and post valuation experience when setting a recovery plan.

Considering the feedback, we have made the following changes to the information requests:

• The assumed investment outperformance has been changed to show the assumed investment return over the recovery plan period as a percentage value (using either a nominal value or as the margin over gilts) rather than a pound value.
• We have removed the requirement to provide a pound value of the allowance for post valuation experience in the recovery plan.
• We have requested the estimated technical provisions deficit used for recovery plan purposes rather than the assumed technical provisions deficit at the date the recovery plan was certified. Given the feedback we propose to continue with our approach of only collecting updated deficit figures and not updated asset and liability figures.
• We have also removed the requirement to provide the date that the actuary certified the recovery plan.

We carefully considered other feedback received and whether additional information should be sought. However, we did not consider that this level of detail was needed.

Investment information

De-risking in the journey plan

Some consultation responses suggested that some schemes legitimately have no de-risking plans and should be allowed to explain why they do not. More broadly, the requirements in this section were perceived as burdensome. Taking these comments into account and recognising that the code has evolved to be more nuanced on the role of investment in the journey plan, we have amended the way in which the de-risking in the journey plan is to be captured.

Trustees will now be asked to provide a high-level overview of how they expect the notional asset allocation to evolve from the current structure to the low dependency investment allocation (LDIA), as this term is defined in the Regulations. This should be in a manner that would support their chosen funding journey plan, in line with the common examples set out in the code:

• Linear evolution
• Linear evolution from the end of the reliability period.
• Stepped evolution.
• Stepped evolution from the end of the reliability period.
• No change from current notional investment allocation.

Trustees will also be able to provide additional narrative information relating to their de-risking approach. This could be used to provide further context about their investment journey plan or additional information about any de-risking framework they may have in place for their actual investment allocation to the extent it is considered relevant. It could also be used to provide the reasons why the plan is for no change from the current notional investment allocation where this is the case.

Investment risk over the journey plan

Our draft template included a requirement to provide a risk figure for the intended asset allocation at the relevant date. Some consultation responses expressed concern that providing this figure, particularly for a Value at Risk (VaR) calculation, would be very costly. This is because, to do this modelling properly, trustees would need to project forward assets and liabilities to the relevant date and then do a stress test on the basis of assumed economic conditions (for example, yield curve) at that date.

While we do not wish to limit the complexity of the analysis that trustees may wish to carry out, our original intention was always to allow simplification and pragmatism in this calculation. We have now made our intention clearer, specifically by allowing stress calculations based on economic and financial conditions at the current date but assuming that the LDIA is already in place, with the scheme funded to 100% on a low dependency funding basis.

We have also provided an example of how we would go about calculating such downside risk. This can be found in the statement of strategy data reference and guidance document published alongside our interim response to the consultation. This should help to underscore the pragmatism available to trustees so that they do not feel pressured into undertaking a costly analysis when they don’t think it is appropriate to do so.

Interest rate and inflation hedging information

In the statement of strategy data reference and guidance document we issued with the consultation, we included information on hedging at the current date, but not at the relevant date. Some respondents noted that the simplified asset categories captured for the notional asset allocation at the relevant date would struggle to capture more complex strategies, particularly relating to aspects such as interest rate and inflation hedging. We have therefore included some additional questions for those schemes that do have specific interest rate or inflation hedging targets at the relevant date in order that they can be captured.

Currency hedging

To reduce the level of burden we have removed the section on currency hedging.

Covenant information

General

While many respondents agreed with much of our proposal relating to the provision of covenant information, some concerns were highlighted, particularly relating to the proportionality of the information request. For example, some respondents felt that the information required was excessive in some places and would be difficult to obtain in certain circumstances.

The requirement to include information in relation to maximum affordable contributions was specifically questioned on the basis that it was considered burdensome and was not referenced in the legislation.

Some respondents also suggested the statement of strategy be revised to enable trustees to express alternative approaches to assessing covenant.

We have therefore built in a greater degree of proportionality in the covenant information we require of schemes, as explained in more detail below and earlier in this response (under the heading 'Low-risk schemes').

It is our view that trustees should be able to provide the required information, particularly given the greater degree of proportionality we have applied, for example in positioning covenant figures as 'at least' a certain amount, rather than an exact figure. We expect employers to provide trustees with the information required to assess the covenant. Our covenant guidance provides further detail about what trustees need to do if the required information is not provided or lacking in detail.

We have carefully considered the feedback suggesting that we allow for alternative approaches to covenant assessment to be expressed in the statement of strategy. However, taking into account the greater degree of proportionality and other amendments that we have applied, we consider that the approach we have taken is appropriate and consistent with the legislation. We have, however, provided optional free text boxes in the covenant section, to enable trustees to provide additional contextual information should they wish to.

The code recognises that the required depth, and frequency of covenant assessment should be proportionate to the circumstances of the scheme and employer. Our covenant guidance also stresses the principle of proportionality when assessing the covenant, including in respect of determining the reliability and longevity periods, and provides examples of situations where a high-level assessment of these periods may be sufficient.

In respect of the information we require concerning maximum affordable contributions, this is a metric based on the level of cash over the employer's reliability period, both of which are key determinants of covenant strength. We had originally proposed that this information be provided by all schemes, as part of the outcome of their covenant assessment. However, considering the comments received, we have sought to reduce the burden of supplying this information by making the 'outcome' of the assessment a more general statement, which the information about maximum affordable contributions will then evidence, if it is required to be submitted. This is to facilitate our no longer asking for this from small schemes using the Fast Track approach or from low-risk schemes, as referenced above. As a result, we expect that over half of UK DB schemes will now be exempt from providing it.

However, we will continue to expect most schemes following a Bespoke approach to provide the information about maximum affordable contributions as evidence of their assessment of covenant. We consider that it is key to evidencing the trustees’ assessment of the strength of the employer covenant, as it demonstrates the financial ability of the employer to support the scheme.

For Bespoke schemes which are required to provide information regarding alternative uses of cash and liquid assets and where the valuation date is on or after the relevant date, we now require this information to be submitted where the recovery plan exceeds either three years or the reliability period. This change has been made to address the concern that the six-year limit implied six years would be acceptable in all circumstances, and to align with our Fast Track parameters. It reflects our expectation that any deficit for such schemes should be recovered within a relatively short period of time.

Aggregation of covenant data

Some respondents raised concerns about having a specific approach or threshold for aggregating covenant data for multi-employer schemes as was suggested in the consultation.

We have decided that trustees can determine how best to assess the combined support for multi-employer schemes based on scheme-specific circumstances. Trustees can provide further details about their approach to formulating their view on cashflow in an optional free text box. We have also provided guidance and illustrative examples on assessing cashflow for multi-employer schemes in our covenant guidance.

Minimum or 'at least' figures

A number of respondents noted that in circumstances where trustees could easily demonstrate that a figure would be 'at least' a certain amount – which amount is sufficient to support scheme risk – it would be disproportionately expensive to require them to provide more specific figures.

For example, trustees might be able to easily demonstrate that a contingent asset has a recoverable value of 'at least' £ [10] million, which is sufficient to cover the level of risk being run by the scheme. This could be more cost effective than incurring a further expense to demonstrate that the contingent asset is worth precisely £ [20] million, when this additional value is not being relied upon.

Another proposal put forward was to allow trustees to submit 'best estimates' of covenant information.

Having considered this feedback, we have concluded that including 'at least' values in the statement of strategy is both a pragmatic and proportionate approach. We are now asking for numerical covenant data items in terms of 'equal to or at least £' or 'equal to or no more than £'.

Reasonable certainty

Some respondents noted that TPR seemed to be requesting certainty about figures that are inherently uncertain. Concern was raised with the suggestion that trustees should have 'reasonable certainty' over cash flows for the entire reliability period (which could be up to six years for Fast Track schemes, or possibly longer for Bespoke schemes).

The template does not reference 'reasonable certainty' this is a phrase that derives from the Regulations, so cannot be changed. In assessing the employer covenant, trustees are required to take into account the length of time they can be reasonably certain that reliance can be placed on their assessment of cash flows and other matters affecting the employer's ability to support the scheme.

However, we appreciate that forecasted cashflows will not always match actual cashflows. Our expectation of trustees is that they will provide covenant information in good faith, having done an appropriate level of due diligence in their forecasting.

Non-segregated non-associated multi-employer schemes

We recognise that for a small number of non-segregated, non-associated multi-employer schemes (for example, industry wide schemes) providing covenant information in the form expected of other schemes would be problematic and burdensome.

Our intention, as outlined in our consultation, is that this small subset of schemes should submit a summary of the trustees' assessment of supportable risk over the reliability period, rather than submit details on cash flows in the format required for other schemes.

We will still require these schemes to provide their views on covenant reliability and longevity. We will also expect them to provide information on any contingent assets they rely upon.

However, exemptions from providing covenant information will still apply to these schemes if they meet the criteria for a low-risk scheme or are a small scheme following a Fast Track approach. If they meet these criteria, they will not need to provide either the summary of the assessment of supportable risk or information on covenant reliability or longevity. They will also be exempt from providing any information on contingent assets other than asset backed contributions.

Appendix: summary of responses to our statement of strategy consultation

Our approach to the statement of strategy

We asked:

To what extent do you agree that our proposal to adjust the information required of smaller schemes as outlined in the document is pragmatic and proportionate?

You said:

Generally, respondents agreed with the proposal to adjust the information required of smaller schemes on the basis that the cost of supplying the same level of information as other schemes could be prohibitive and disproportionate to the associated risks.

Several respondents suggested that TPR go even further than proposed to reduce the information required of smaller schemes. They considered that the amount of covenant and investment information proposed still appeared to be excessive and disproportionate.

It was noted, however, that any adjustments to the information requested could only be made under 'Part 2' (supplementary matters) of the statement of strategy since the discretion given to TPR under the legislation as to the level of detail required did not apply to 'Part 1' (funding and investment strategy).

We asked:

To what extent do you agree with the two definitions proposed for smaller schemes depending on whether we are requesting actuarial or investment information?

You said:

Many respondents disagreed with the two definitions proposed for smaller schemes. Suggestions were split between using the investment definition, the actuarial definition, a combination of both or an entirely different definition.

Some respondents also highlighted views relating to the definition of members, should a small scheme be defined by reference to number of members. For example, that DC members of hybrid schemes be excluded, or that fully insured annuitants be excluded.

A few also suggested that the two definitions created confusion, and it was unclear what they meant when working out what covenant information was expected of smaller schemes. They suggested it would be helpful to have one definition of smaller schemes to make it easier to understand which information requests apply to them.

We asked:

To what extent do you agree with our proposal to have pre-defined templates for the statement of strategy to help trustees provide information that is proportionate, relevant and specific to the circumstances of their schemes?

You said:

Respondents generally agreed in principle that it was appropriate to have pre-defined templates. However, there was a response suggesting that one template should be applicable to all schemes and be accompanied by directive notes. These would identify the different information requirements under 'Part 2' applicable to schemes with different characteristics.

A number of respondents said that changes should be made to the templates to allow for more flexibility in the responses, with some wanting additional options and free text boxes to comment further.

A few also commented that the templates were not always clear on the level of detail to be provided by different types of schemes under 'Part 2'. In some instances, both Part 1 and 2 of the templates appeared to request information beyond the legislative requirements.

Concern was also raised about the possibility of obtaining the employer’s agreement to some of the information requested under 'Part 1'. This was mainly concerning the journey plan section addressing actuarial assumptions, because it extended far into the future which is uncertain.

Many responses suggested that, in their proposed form, the templates would not be used for purposes other than compliance with the requirement to complete the statement of strategy.

Multiple responses highlighted that TPR's systems were important, noting the manner of submission will have a significant impact on the level of burden. Some respondents identified the need for a submission process and/or system that enables collaborative working between the various advisers, for example using spreadsheets.

We asked:

To what extent do you agree with the benefits we expect to see by providing a pre-determined statement of strategy?

You said:

Although responses were mixed, generally respondents agreed with our list of the potential benefits of using TPR's templates.

Some highlighted that the use of TPR's templates should result in information being provided in a more consistent manner, which would improve regulatory oversight and reduce the risk of schemes producing a document that does not comply with the regulatory requirements.

Respondents also noted the benefit that schemes would not need to spend the time and cost associated with designing their own document.

To be most beneficial to schemes, respondents emphasised that an efficient submission process with pre-populated options and automated responses should be provided where possible by TPR. In their view, such a process would reduce the costs and work necessary to complete the statement of strategy.

Some argued that the use of TPR templates could mean that submissions could become less scheme specific and, as a result, could provide information of a lower quality. The need to balance the potential benefits against the additional cost and data requirements was highlighted by some respondents – particularly for schemes where a pre-determined statement may not accurately reflect a scheme's circumstances and so may be of limited benefit to trustees and members.

It was also noted that for the many schemes now in surplus, some of the risks that the new funding regime was intended to address no longer exist. It was submitted that the data collection burden should reflect this.

The risk of the statement of strategy being non-compliant because of mandatory information being unavailable was also highlighted by some respondents. This was particularly in the context of covenant information not being available from the employer. It was suggested that guidance should clarify the extent to which an incomplete statement of strategy is non-compliant and how trustees should approach this situation if it arises.

We asked:

To what extent do you agree with the key differences in the information we ask for between the four proposed templates?

You said:

There was general agreement that different information should be asked for under 'Part 2' of the statement of strategy depending on differing scheme circumstances. There was a variety of views on what those circumstances should be.

Some respondents suggested it would be more user-friendly to require less data be provided and allow greater flexibility in the responses. A few suggested, for example, that schemes in certain circumstances should be permitted to ignore various information requests made in the templates.

Some questioned whether the provision of benefit cashflows for 100 years was necessary and justifiable.

Several responses gave the view that too much data was being asked for in Fast Track on the basis that the amount of information requested was inconsistent with the low-cost route to compliance envisaged under Fast Track.

There were several suggestions made that TPR should explore different data requirements under the Bespoke approach depending on which of the Fast Track parameters is not being met. This was suggested to avoid schemes which meet the majority of the Fast Track requirements needing to provide all the data and information required under the bespoke approach.

A lighter touch approach to covenant information for pre-significant maturity schemes that are well-funded schemes and/or low investment risk was favoured by some respondents.

Some respondents recommended that trustees should include a commentary as to why the use of the Fast Track approach has been considered appropriate in the scheme's circumstances.

We asked:

Are there any scenarios that the proposed four templates are not suitable for?

You said:

Many responses voiced the opinion that one size does not fit all – particularly open schemes. However, many took the view, however, that an increase in the number of templates could lead to confusion and incorrect submissions.

Concerns were raised that some of the information required to be provided in the templates added no value to trustees of certain schemes (for instance, well-funded schemes with low investment risk).

Some respondents suggested the templates would not work for certain categories of scheme. In particular, they mentioned industry-wide multi-employer schemes and shared cost schemes along with other non-traditional DB schemes such as cash balance schemes and DC schemes with guaranteed annuity rates.

Concerns were also raised about the data provision for an open scheme being more complicated to provide than for a closed scheme. Similarly, for those with a significant insurance buy-in.

We asked:

To what extent is the example Bespoke template a clear tool that supports trustees' long-term planning and risk management and facilitates engagement between trustees, their employer and TPR?

You said:

Some respondents were concerned that a sophisticated bespoke approach would be interpreted by TPR as carrying more risk.

While some respondents viewed the bespoke template as clear and helpful for trustees, many suggested that it would be unlikely to be used as a key long-term planning and risk management tool by trustees. Rather its utility would be confined to achieving compliance with the regulatory requirements and providing TPR with the means to collect data.

Some suggested that the format of the template could be re-arranged so that areas focused on monitoring risk and progression were at the forefront and more easily accessible.

It was suggested that the online system should allow for the statement of strategy to be broken into segments or sections so that individual elements may be updated as needed, without having to resubmit the entire statement.

There was a suggestion that employers would be reluctant to agree much of the detail required as, in many cases, the information requested is for a time period which will exceed that of their business plans.

We asked:

Do you have any further comments on our general approach to the statement of strategy template?

You said:

Respondents raised several issues. Many argued that the proposed approach to the statement of strategy was overly burdensome. Suggestions from respondents included removing or reducing the requirement to provide benefit cashflows and term-dependent assumptions. Adapting more to scheme circumstances was also suggested, for example, by removing the requirement to provide covenant information for schemes which have reached their relevant date or reducing the requirement for Fast Track, small or well-funded schemes.

Some respondents argued that the proposed format of 'Part 1' of the template was unsuitable and that it should be slimmed down, with the detail included in appendices. In addition, it was also commented that the statements summarising the legal requirements in the template were unnecessary and made the template harder to follow.

A concern was also raised that some of the information requested in the statement of strategy would duplicate information already provided in the scheme return and that, for the most part, it was not appropriate to be including it in either of Parts 1 and 2 of the statement since it was not information which required the employer's agreement or comment. It was suggested that this be collected as an appendix to the statement of strategy.

A number of respondents highlighted the importance of the submission process being straightforward. The need for flexibility was also advocated by some respondents arguing that the templates needed to include enough free text boxes to allow for scheme-specific circumstances to be described.

Some respondents were concerned about the need to resubmit the statement of strategy between valuations if the scheme changed its investment strategy. This would add cost to changing the investment strategy, and potentially deter smaller schemes from doing so, which may not be in members' best interests. Respondents asked if a partial update could work.

Part 1: funding and investment strategy

Long-term objective

We asked:

To what extent do you agree that the long-term objective options (buy-out, run-off, move to a superfund or alternative consolidator) capture most long-term objectives for a scheme?

You said:

In general, respondents considered that the options provided should cover most scenarios. However, many respondents expressed concern that some of the terms provided in the multiple-choice list were unclear and suggested that additional options should be included.

More specifically, some respondents noted that the options provided were not suitable for open schemes and that alternative long-term objectives may develop over time with market innovation. It was highlighted that terms like 'run-off' and 'long-term' were not well-defined. In addition, a few respondents suggested adding additional categories such as, 'merger with another scheme' (i.e. where a known short-term end game) and 'buy in' (sometimes a preference of employers for accounting reasons).

Several respondents pointed out that the superfund gateway test means that transfer to a superfund cannot really be considered an appropriate long-term objective. This would imply that a scheme is planning to fail to reach a buy-out level of funding, which would seem contrary to the gateway test.

Several respondents also noted that employers could be reluctant to identify the long-term objective unless it was made clear that it was strategic in nature and not legally binding. This was due to the potential accounting consequences associated with binding commitments and, in particular, an agreement to buy out benefits. As a result, it was suggested that to ensure TPR received meaningful responses, the template wording and/or guidance be changed to account for the objective changing over time and/or that a narrative box be provided for comments.

We asked:

To what extent do you agree that the three broad categories of growth, matching, and hybrid assets gives sufficient breakdown of the low dependency investment allocation?

You said:

Although many respondents agreed with the use of these three broad categories, a few commented that the 'hybrid' classification was not an industry-standard categorisation.

There was also widespread agreement that it would be important to provide clear guidance on what would be acceptable investments within each category.

Some respondents provided examples of assets that could be interpreted as fitting into more than one category, for example diversified growth funds or overseas corporate bonds hedged back to sterling. These would need to be explicitly categorised and/or principles set out detailing how assets should be classified. Some respondents also noted that the simplified asset categories captured for the notional asset allocation at the relevant date would struggle to capture more complex strategies, particularly relating to aspects such as interest rate and inflation hedging.

A number of respondents also noted that they do not generally have a distinct plan for investing surplus assets at the relevant date. Therefore, they did not consider it appropriate to require information about the investment allocation of the surplus.

Current funding position

We asked:

To what extent do you agree that it is sensible to include all three funding bases (low dependency funding, technical provisions and buy-out)?

You said:

While respondents generally agreed that it was appropriate to include information about a scheme’s funding position, noting that it should be easy to populate based on valuation work, a number raised issues with some of the detail, in particular:

• several suggested that the bases may be the same and suggested a tick box could be included to indicate this
• for a number of reasons, some disagreed with the proposal to include all three bases, in particular the buyout basis which would require the employer to agree this basis

Lack of consistency in terminology used was also highlighted, for example by referring to both the ‘solvency’ basis and the ‘buyout’ basis to describe the same thing.

Outline of funding journey plan

We asked:

To what extent do you agree that the standard wording in the proposed statement of strategy template is adequate to outline the funding journey plan?

You said:

Respondents generally agreed that the wording proposed in the template was adequate.

Some did however comment that most of the wording in the example template was in square brackets and so it wasn't clear how much of the information to be provided was optional and whether schemes could add their own wording. Several responses advocated for greater flexibility in the information to be provided and requested that TPR share examples of potentially acceptable wording in other situations.

A few respondents also highlighted that legislation calls for consistency between the technical provisions and low dependency funding bases, while the wording implied convergence.

The need to include the wording which TPR provided in the example template to describe the journey plan was also questioned, noting that it would be unlikely to be read in most cases.

Discount rates: methodology

We asked:

To what extent do you agree that the discount rate approach options (horizon method, different rates pre-retirement and post-retirement, constant addition) include the majority of options available?

You said:

Respondents generally agreed that the discount rate approach options provided in the example template covered the majority of the options available.

Some respondents did, however, suggest that additional options be provided. Additional options requested included:

• dynamic discount rates where the margin above gilts is expected to move over time (rates explicitly linked to yields on actual assets)
• time-based switching of discount rates (similar to different rates pre- and post-retirement, but where the rate switches at x years before normal retirement age (typically x=10 or x=5)).

Some respondents disagreed with limiting the options available, arguing that other approaches might be used with more frequency in future. For example, schemes in long-term run-on may more frequently use approaches such as stochastic, asset liability modelling or probability measures. It was also noted that the template may not be suitable if a scheme is cashflow driven.

It was also suggested that the template would need to be adapted for approaches where the technical provisions and low dependency bases may differ by more than the premium applied on the discount rates, as for example the template implies the same underlying yield curve would need to be provided for both.

Underlying yield curve/single yield information

We asked:

To what extent do you agree that the selections of gilts, swaps, inflation, or other, cover the main underlying yield curves used when setting technical provisions and low dependency funding basis?

You said:

While respondents generally agreed with the options provided, many highlighted other options that they felt should be included, along with useful commentary. In particular, corporate bonds or a mix of corporate bonds and gilts was raised as an alternative underlying yield commonly used although it was recognised that this could be described by using the 'other' option. The importance of 'other' as a category was highlighted by a number of respondents.

A danger that the template was overly simplistic and so would deter innovation was raised by some respondents.

Other nuances were raised by respondents, such as schemes that use different curves for different membership categories or different curves driven by different pension increase regimes within a scheme.

It was emphasised that different underlying curves for technical provisions and low dependency might be used and so the template would need to accommodate this.

Addition or premium to the yield curve/single yield

We asked:

In respect of the underlying yield curves, indicate the extent to which you agree with the approach proposed of providing the forward discount rate curve, or for small schemes the appropriate single rate?

You said:

Respondents generally agreed with the approach proposed. A few stressed that small schemes should still have the option of providing the full yield curve if they wish to.

A number of respondents questioned why this data was needed and what TPR would use it for. Specifically, it was commented that 100 years of forward rates appeared excessive and the usefulness of RPI or CPI curves (as benefit increases are likely to be more complex) was also questioned.

We asked:

In respect of the addition/premium to the yield curve, indicate the extent to which you agree with the approach proposed to provide the forward discount rates?

You said:

Respondents generally agreed with the approach proposed.

Some respondents questioned whether the approach worked for the 'other' category and if it might be simpler to just provide the discount rate curve.

Some questioned whether 100 years' of rates was proportionate and a few suggested that this might be reduced to 40 or 50 years.

Several suggested that the templates should allow for schemes to follow a different approach to setting the discount rate for technical provisions and for the low dependency target. They pointed out that consistency is not the equivalent to always assuming the assumptions will be the same after the relevant date.

It was also mentioned that the approach may inadvertently restrict methods to derive forward discount rates to a 'gilts plus' approach and so this could limit future innovation.

We asked:

In respect to the addition/premium to the yield curve for schemes that use a pre and post-retirement discount rate methodology, indicate the extent to which you agree with the approach proposed of providing the appropriate single rate?

You said:

Respondents generally agreed with the approach proposed.

Other financial information

We asked:

To what extent do you agree with the proposed approach to capture information on inflation and pay increase data?

You said:

Responses were mixed with respondents highlighting some of the difficulties in capturing inflation and pay increase data. Some suggest that the information requested is of limited value and potentially costly for some firms to produce in a consistent form. It was noted, for example, that inflation assumptions themselves don't provide any information about how caps and collars are considered. It was suggested that deferred revaluation and pension increase assumptions, rather than inflation assumptions should be collected.

Demographic information

We asked:

To what extent do you agree that it would be useful to provide further information on the mortality tables adopted for the mortality assumptions?

You said:

Generally, respondents considered that the data ask was sensible and further information should not be required or would be disproportionate. Some respondents highlighted that the information requested in this area is limited and does not provide a full picture of the mortality assumptions and felt we could consider if we required more data. It was also noted that in some cases one might use different assumptions for different groups of members for example, and for situations like these, guidance would be needed on what to provide.

We asked:

On allowances for commutation, to what extent do you agree that the options provided capture the majority of approaches used?

You said:

Generally, respondents agreed that the options provided in the templates captured the majority of approaches. However, some questioned the cost and benefit of the information requested and suggested removing the item from the template completely, pointing out that:

• there is an associated cost to producing this information since every scheme would need to carry out (and check etc) an additional valuation of liabilities
• the impact of cash commutation may not be as material as other assumptions not included. For example, more material assumptions might be how pension increases are derived from inflation, allowance for other options, proportions married etc

Respondents also provided comments relating to specific circumstances. For instance, it was noted that certain schemes have existing cash lump sums before commutation so there should be the ability to indicate where this applies to provide further context about the assumptions adopted.

Comparison between assumptions for technical provisions and low dependency funding basis

We asked:

To what extent do you agree with the proposed approach of asking about how the key assumptions differ between the technical provisions and low dependency liabilities?

You said:

Respondents generally agreed with the proposal.

Some of the respondents suggested a preference for how this data is to be provided, including:

• a free text box should be included to provide the opportunity to explain the differences and that proportionate responses should be accepted for trivial differences
• a spreadsheet should be included for completion as it may be easier to input technical provisions assumptions and then have inputs for low dependency ones where different
• it would be simpler to provide a list of the key assumptions and then ask schemes to identify and explain any difference. This is because the data template provided suggests a yes or no answer and it is unclear in what format any difference is to be identified

We asked:

Do you have any further views or considerations on the information required for Part 1 of the statement of strategy, including any views on alternative approaches or missing data to support Part 1?

You said:

Common themes were noted in the responses. Although it was mentioned that the increased information and data could enable TPR to publish more detailed aggregated and anonymised data for detailed comparative analysis and benchmarking, many respondents considered that the amount of information being requested was overly burdensome and questioned its value in all cases. For example, it was highlighted that there was no reduction in the information required for schemes following a Fast Track approach. Some respondents also highlighted the potential duplication across different compliance documentation, including scheme return and Pension Protection Fund levy submissions.

Other matters raised by respondents included:

• reiterating the need for flexibility, for example in capturing the long-term objectives and scheme structures that do not follow the template
• highlighting that not all schemes needed employer agreement to 'Part 1' and the templates should be adapted to allow schemes to flag this when only employer consultation was required

Part 2: actuarial information

Estimate of scheme maturity and evidence for how it will change

We asked:

To what extent do you agree that it is reasonably straightforward to provide the cashflows information listed?

You said:

There were mixed responses to the question. While some respondents were of the view that it would not be straightforward to provide the cashflow information requested, many acknowledged that this information was available or would be relatively easy to produce for most (but not all) schemes. Common concerns expressed included the following:

• The need to provide cashflows at all for the purpose stated. Several respondents pointed out that the current scheme duration and expected date of reaching significant maturity, along with some narrative should be sufficient to meet the legal requirements.
• The need to provide the volume and granularity of cashflow data being requested.
• A lack of clarity about the format in which the information is to be supplied to TPR and the likelihood this will not be straightforward and therefore costly. Several respondents noted a preference for submission via a spreadsheet.
• Expected increased cost to schemes of producing, checking, and reviewing the cashflows to ensure they are in form that complies with professional standards/TAS300, noting that cashflows currently produced are typically only intended to be illustrative.
• Impact of 'post-production of cashflow' adjustments to valuation results and the additional work (and therefore cost) required to ensure consistency of cashflows.

Other concerns included:

• cashflows being inconsistent with those used to calculate scheme duration
• the risk that schemes use these cashflows for other purposes for which they are not intended, for example liability-driven investment
• the treatment of insured liabilities, noting that the legislation permits a scheme to exclude these liabilities in certain situations

Generally, those that responded to the consultation agreed with the approach to not require small schemes to provide cashflow information.

We asked:

Is it easier to provide benefit cashflows on a low dependency basis or on a technical provisions basis?

You said:

Respondents generally thought there was no material difference. A small number expressed a preference for technical provisions, with one response pointing out that schemes may use technical provisions cashflows for other purposes such as hedging. It was also suggested that the most cost-efficient approach would be to provide the same cashflows that are used to calculate the scheme's duration.

We asked:

To what extent do you agree that you would expect these cashflows to be materially different?

You said:

Respondents said they generally expected the cashflows to be broadly similar but noted some differences may be expected, and may be material, where schemes were not at significant maturity, depending on:

• inflation and demographic assumptions
• the allowance for member options, tax free cash, and discretionary increases
• the allowance for expenses
• any assumption for transfers out

Some respondents also suggested that further guidance was needed on the treatment of additional liabilities including expenses and GMP equalisation.

We asked:

To what extent do you agree that splitting the cashflows into the five categories listed in the consultation under 'Actuarial information' is a reasonable approach?

You said:

There were mixed responses to the question. Generally, respondents considered that the categories provided were reasonable and typical but commented on the volume of work required to provide the information and questioned its proportionality.

A number of respondents requested clarification on the treatment of insured benefits and commented:

• these won't always be included in technical provisions
• policies don’t always exactly match benefits
• policies may cover pensioners and deferred members, and these cannot be easily split out

Other actuarial information

We asked:

Please provide any further considerations that you have on the actuarial data to be included in part 2 of the statement of strategy.

You said:

Several respondents requested guidance on how to provide the proportion of the liabilities on a low dependency basis which are sensitive to inflation, noting that derivation of inflation sensitivities can be a material piece of work and a preference for providing a reasonable estimate.

Many respondents questioned whether the provision of cashflow information was a proportionate and pragmatic way to reflect the legislative requirements.

Some respondents commented on the duplication of information being requested through scheme returns and Pension Protection Fund levy submissions, and that consideration should be given to streamlining.

Some respondents reiterated that the proposal could be costly, burdensome or difficult to prepare. Some suggested ways to streamline the process for completion including:

• minimising the requirements for Fast Track, particularly if Fast Track is subject to actuarial confirmation
• providing a clear indication of expected minimum commentary on certain key points such as the measures taken to monitor and mitigate key risks

We asked:

To what extent do you agree with the removal of the requirement to provide accounting valuation and section 179 valuation data from a valuation submission perspective?

You said:

Respondents largely agreed with the proposal although one suggested it would be appropriate to include an option to submit a summary of the section 179 valuation information at the same time.

Recovery plan

We asked:

To provide details about post valuation experience, we expect providing an updated estimated deficit would be best. To what extent do you agree that providing an estimated deficit is the appropriate approach?

You said:

Respondents generally agreed with the proposed approach with some respondents pointing out there could also be an estimated surplus.

It was also highlighted that the recovery plan itself is not certified so there will need to be some further clarification as to the date of the estimate.

We asked:

If providing an updated deficit, to what extent do you agree it would be straightforward to also provide the updated estimates for assets and liabilities, if we require that detail?

You said:

Respondents generally agreed that it would be straightforward to also provide estimated assets and liabilities, provided that approximate figures were acceptable (for example, based on roll forwards).

However, some respondents did not agree, suggesting that in some cases roll forwards would be based on funding levels rather than absolute values of assets and liabilities.

We asked:

Share your views on our proposed approach to collecting information on investment outperformance and post-valuation experience, including any alternative questions that should be considered.

You said:

Some respondents commented that there are different approaches to reflecting post-valuation date experience in the recovery plan. They noted that where the schedule of contributions is certified as at the valuation date based on the expectations at that time, it may not be possible to accurately record the assumed deficit at the date the schedule of contributions is certified.

Other specific comments were raised. For example, whether further clarification regarding how the information should be calculated is required. Suggestions were also made that an 'other' category be included to capture non-discount rate assumption prudence being unwound in the recovery plan.

The need for greater flexibility was also highlighted, for example, for shared cost arrangements.

Part 2: supplementary matters – investment journey plan

We asked:

We do not envisage schemes will incur significantly more costs in providing journey plan investment risk data. To what extent do you agree with this assessment?

You said:

Some consultation responses expressed concern that providing a risk figure for the intended asset allocation at the relevant date, particularly for a VaR calculation, would prove to be very costly. They noted that future estimates of VaR as at the relevant date or at significant maturity were not easy to calculate and would incur additional costs (potentially £10,000 or more, even for small and medium-sized schemes, and much more if stochastic modelling was to be used).

Many suggested that such a metric would be of limited use given the theoretical nature of the LDIA) and that assumptions would need to be projected for both assets and liabilities, often many years into the future. In addition, the value of this calculation was questioned, due to the expectation that the VaR at significant maturity is likely to be mainly in respect of curve mismatches across the nominal and real yield curves, as well as credit risk, and is likely to be relatively low.

Some considered that an alternative could be to use a VaR metric calculated as if the LDIA at the relevant date was in place now.

Respondents also saw little value in providing currency hedging information. It was highlighted that there are different ways in which schemes manage their currency exposures. For example, some consider the exposures to each currency that they are left with after their currency hedges, rather than the proportion of each currency exposure hedged. Also, some may manage their exposures differently in different asset classes.

It was also highlighted that some schemes legitimately have no de-risking plans and should be allowed to explain why they do not.

Some respondents disagreed with our proposal to align the strategic investment strategy information with the scheme return. Some felt that the level of detail required for tiers 2 and 3 is often not agreed for a strategic asset allocation. Others noted that the tiers are not entirely consistent with the scheme return, particularly in relation to the term of bonds.

Part 2: supplementary matters – covenant

We asked:

To what extent do you agree that the proposed approach to submitting covenant information will work in practice for different types of multi-employer schemes?

You said:

While respondents didn't generally disagree with our overall proposal, some noted that data aggregation could be disproportionately expensive. Several respondents suggested that TPR provide more guidance on this and also noted that:

• stronger employers may have a limited obligation to a scheme
• adjustments may be required to avoid double counting
• it may sometimes be appropriate to focus on consolidated parent/group information
• the scheme's legal structure should be considered (for instance where a scheme is last man standing)
• trustees should be able to explain their approach through free text boxes

There was general agreement to our proposal to carve out non-segregated non-associated multi-employer schemes.

We asked:

To what extent do you agree with the proposal that aggregated covenant information should cover employers that account for at least 80% of scheme liabilities?

You said:

There was a mixed response to this question. Some considered that 80% was an appropriate threshold. Others considered that there are cases where a higher or lower percentage might be relevant, for example to take account of a scheme's last man standing nature or the contingent protections which provide incremental support. Some also gave the view that the proposed approach would mean providing a disproportionate level of granularity where there are a significant number of small employers. Conversely, it was suggested that in addition to requesting aggregated covenant information in respect of employers that account for 80% of scheme liabilities, we request information for any employer that accounts for a specified percentage of scheme liabilities. Many wanted the ability to explain their approach.

We asked:

We expect employers to work with trustees and provide the appropriate information. To what extent do you agree that information required will be obtainable to understand the level of risk supportable by the covenant?

You said:

A few respondents indicated that the proposed information ask would not be obtainable. Others considered that it was excessive in some cases (for small or well-funded schemes) or not always relevant (for not-for-profit employers). It was suggested that trustees should be allowed to evidence that the covenant is sufficient to support scheme risk, rather than a maximum level of support.

Other concerns included certain data not being available (such as forecasts beyond normal budgeting period) and management being unable or unwilling to share information referencing issues such as:

• confidentiality
• regulatory barriers
• forecasts not being prepared at an employer level
• management of large/overseas employers not engaging with trustees of small/UK schemes

Guidance was requested on:

• how to test, adjust and extrapolate management forecasts
• how detailed trustee reviews should be
• assessing not-for-profit employers (where reliability may be limited and cash flows used for charitable purposes)

Clarity was also requested on TPR's use and storage of commercially sensitive information, as well as whether trustees could explain limitations in their data submissions.

A general point was made that information should only be required when needed to comply with the legislation, and that the required information was too prescriptive and disproportionate especially for small and well-funded schemes. It was also noted that it would be difficult to obtain in some cases (for example not-for-profit employers). Some respondents also queried the requirement to assess maximum affordable contributions on the basis that it was considered burdensome, and this information is not mentioned in the legislation.

It was also mentioned that the covenant information being requested was just one approach to evidencing the trustees' assessment of the strength of the covenant and how long it was reasonable to rely on the assessment. It was suggested that the statement of strategy be revised to enable trustees to express alternative approaches.

We asked:

To what extent do you agree that the covenant information we propose to request for Bespoke and Fast Track valuation submissions is reasonable and proportionate?

You said:

Many respondents felt that information required for Fast Track and Bespoke schemes was not reasonable or proportionate – particularly for well-funded and smaller schemes, as well as where a valuation deviates only slightly from Fast Track parameters.

More specific concerns included:

• TPR requiring an excessive level of accuracy on figures (which would be expensive and difficult to provide)
• a lack of clarity on how trustees should assess/adjust certain figures and that the data requested was not appropriate/relevant for certain schemes (including not-for-profit employers or employers who benefit from specific government support)

In respect of these and other issues, several respondents requested the option to provide further written explanations as part of the statement of strategy. Another proposal was to allow trustees to submit 'best estimates' of covenant information.

Several respondents made the point that detailed covenant information, including maximum affordable contributions, should not be required once a scheme has reached its relevant date and is well funded on a low dependency basis.

Some stated that information on alternative uses of cash, where recovery plans exceed the reliability period or six years, had limited value because it would only provide an indication for the short term, and this may indicate that TPR would not have concerns about recovery plans of less six years.

One response argued that asking for detailed information when using the Bespoke approach was excessive, especially where the employer is evidently distressed, and the scheme was effectively reliant on investment returns to improve its funding position. Asking schemes, especially smaller ones, for this information in this situation was considered disproportionate. It was suggested that a nil return for reliability period, free cashflow, liquidity etc ought to be sufficient in these circumstances.

In addition, some information was not easily tailorable based on scheme-specific circumstances, for example, complex covenant structures. It was also not clear how it related to funding and investment strategy decision-making. It was mentioned that there could be many unintended circumstances including increased costs without much benefit, misplaced assurance about risks after completing the statement of strategy and potential strain on the relationship with the employer due to excessive information being asked.

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