The Pensions Regulator has issued the final version of its revised Code of Practice on funding defined benefits, together with its latest Annual Funding Statement for DB schemes.


This is the first overhaul of the Code since it was originally launched in 2006, and follows consultation on a revised draft in December 2013. The Code also reflects the Pensions Act 2014 which introduces a new statutory objective for the Regulator, in relation to the exercise of its functions relating to scheme funding, “to minimise any adverse impact on the sustainable growth of an employer”.

What does the Code say?

The Regulator says that the best support for a well-governed scheme is a strong, ongoing employer alongside an appropriate funding plan. To this end, the Code encourages trustees and employers to work collaboratively, using the flexibilities within the funding regime. Trustees should act proportionately, taking into account a scheme’s size, complexity and level of risk, and seek to strike a reasonable balance between the need to pay promised benefits and minimising adverse impact on the employer’s sustainable growth.

There are some shifts of emphasis from the draft Code. In relation to reasonable affordability the stress is now on considering the appropriate period in which to repay the deficit, in view of the risks to the scheme and the impact on the employer, rather than simply repaying the deficit as quickly as reasonably affordable. The text now makes it clearer that trustees do not need to scrutinise an employer’s key business decisions, unless the employer is seeking to prioritise investment in the business over scheme funding. It also gives less weight to the Regulator’s use of a “Balanced Funding Outcome” indicator, acknowledging that the Regulator will use a broad range of risk indicators in selecting cases for review.

Application of the Code

The Code has been laid before Parliament and will come into force in the coming months. For the time being, the Regulator strongly encourages trustees to take the new Code into account, but says that it understands that this may not be practical for schemes that have already undertaken a substantial amount of work towards valuations. Trustees should also consider the Annual Funding Statement, which reinforces the Regulator’s new thinking in the context of schemes undertaking 2014 valuations.

The Code and associated documents (including the Annual Funding Statement) can be found here.