Pensions Regulator's Key Messages for Schemes following Brexit vote

By: Madeleine Cox

Submitted by Firm:
Addleshaw Goddard
Firm Contacts:
Michael Leftley, Sarah Harrop
Article Type:
Legal Update

The Pensions Regulator (TPR) has issued a statement setting out the approach which it expects pension trustees to take in the light of the recent vote to leave


TPR had issued its annual funding statement shortly before the referendum, which said its analysis indicated that for the majority of schemes there may be sufficient affordability for the employer to increase contributions where necessary to maintain an existing recovery plan end date. TPR stated that it expected trustees to seek higher contributions where there was sufficient affordability "without a material impact on…sustainable growth plans".

The reaction of the markets to the Brexit vote, in particular falling gilt yields, has resulted in a significant increase to schemes' defined benefit liabilities. Shortly after the referendum, pensions minister Ros Altmann commented that employers and trustees should make greater use of existing flexibilities under pension funding laws to avoid weakening employers who were under short term pressure to increase deficit payments following Brexit impacts on liabilities.

It wasn't therefore clear how this apparent tension between TPR's pre-Brexit positioning, and the Pension Minister's sympathy for DB scheme sponsors, would be resolved. However TPR has now issued a statement to set out its stall. Much of what's in the statement is "business as usual" and simply a reiteration of current legal requirements. However there were a few new nuggets…

TPR's key messages for Defined Benefit Schemes

  • Trustees should have an "open and collaborative discussion" with the scheme's employer about possible effects of the referendum outcome on the employer's business, and consider the impact on the employer's covenant strength.

  • Specific issues to consider in relation to covenant strength include currency cost base, reliance on imports or exports - particularly to the EU, plans for investment (and any changes in this) including whether these are reliant on funding from overseas, and the impact of changes in the strength of sterling and interest rates.

  • Where deficit repair contributions were constrained to allow for investment in the sustainable growth of the employer, trustees should ensure that the relevant funds are still being invested towards growth, not diverted to pay dividends.

  • Specific risks that trustees should consider are interest rate and inflation risks, concentration of investments, currency exposures, managing liquidity and counterparty risks.

  • Trustees should not be overly focussed on short-term market movements, but need to consider how market volatility may impact on expected risk and returns in the longer term, and whether this means the trustees need to reconsider their investment strategy.

  • There have been no changes to the requirements relating to carrying out an actuarial valuation. TPR's annual scheme funding statement remains relevant, and should be taken into account along with TPR's latest statement.

TPR's key messages for defined contribution schemes

  • Trustees should continue to monitor the longer term performance of individual funds and not take decisions based on short-term investment performance.

  • If members contact trustees about the impact of the Brexit vote on their pensions saving, trustees should be prepared to explain, "clearly, and in plain English", the approach that they plan to take.


TPR's statement indicates that there will be no fundamental shift in approach to scheme funding as a consequence of the Brexit vote. However, it is clear that TPR expects trustees to be vigilant in assessing its impact on employer covenant strength, and taking this into consideration when setting the scheme's investment and funding strategy.