The Pension Schemes Bill is an opportunity for the sector to “create a sustainable and holistic system that serves savers well for the foreseeable future”, according to the Pensions Regulator (TPR).
Speaking at the Pensions Expert Defined Benefit Strategic Summit this week, David Walmsley, TPR’s director of trusteeship, administration and defined benefit supervision, urged delegates to embrace the opportunities of the reforms currently being developed.
Walmsley said: “There is no doubt that we have a challenge ahead of us, but by placing good governance and strong trusteeship at the heart of all we do as an industry, we will be able to create a sustainable and holistic system that serves savers well for the foreseeable future.”
The bill contains legislation to give trustees the power to free up surplus capital from defined benefit (DB) pension schemes, subject to certain conditions.
More than 75% of DB schemes are now in surplus on a low dependency basis, Walmsley said, a shift that opens up new strategic options beyond the traditional buyout route.
As trustees consider their options in this regard, Walmsley said they must “weigh risks against potential benefits and ensure any approach is backed by robust governance and clear timescales”.
“We recommend establishing a surplus policy developed with employers, inclusive of member views, and informed by legal and covenant advice,” he continued. “Trustees must remain independent and not be pressured by employers; the final decision is theirs.”
The new DB funding code
Walmsley also addressed the new DB Funding Code, as the first schemes begin to carry out their valuations under the new regime.
He urged trustees to avoid complacency and to work closely with advisers and sponsors in preparing for these valuations. TPR will concentrate its regulatory scrutiny on higher-risk bespoke submissions under the code, assessing investment strategies, recovery plans, and covenant strength.
“As we receive the first valuations under the new DB Funding Code, our approach will evolve over the next few years, becoming more targeted thanks to improved data.”
David Walmsley, TPR
“We expect around 80% of schemes to meet ‘fast track’ requirements, reducing regulatory burden,” he said. “Schemes opting for the ‘bespoke’ route should engage early with advisers and employers to shape appropriate strategies…
“We’ll intervene where risks are inappropriate, and our impact is greatest. As we receive the first valuations under the new regime, our approach will evolve over the next few years, becoming more targeted thanks to improved data.”
Productive finance expectations and fiduciary duty
Turning to investment, Walmsley said trustees must be equipped to assess long-term opportunities such as infrastructure and climate transition projects, amid pressure from the government to allocate more to alternative asset classes.
“Trustees must be equipped to assess illiquid assets, understand long-term risk-adjusted returns, and evaluate how these investments align with their scheme’s journey plan and covenant strength,” Walmsley stated.
“At the Pensions Regulator, we are clear: productive finance must be pursued responsibly. That means trustees and scheme managers must have the right skills, access to high-quality advice, and governance structures that support challenge, transparency, and accountability.”
TPR’s work was aimed at “raising the bar” on the capabilities of trustees and others managing pension schemes, he said.
He added: “Productive finance offers real potential to deliver sustainable returns and broader economic value. But it must be underpinned by governance that is rigorous, professional, and fit for purpose. That is the standard we expect, and the standard members deserve.”
