Get ready: changes to 2024 Scheme Returns for DB/Hybrid Schemes

Following the gilts crisis in autumn 2022, the Regulator published new guidance in April 2023 setting out how the Regulator expects trustees to manage LDI strategies (the "LDI Guidance"). See our previous briefing on the LDI Guidance here.

Many trustees (in conjunction with their advisers) have since revisited their LDI strategies to align with the LDI Guidance, considering in particular what liquid assets will be available to meet collateral requirements and the sufficiency of their collateral buffers, and have updated their LDI documentation accordingly.  

There is considerable overlap between the new Scheme Return questions on LDI and the requirements of the LDI Guidance. The Regulator will therefore be able to use Scheme Return information to assess the extent to which trustees are in fact taking account of its guidance.  

Trustees who have not reviewed their LDI strategies, documentation and governance processes in light of the LDI guidance may find answering some of the new Scheme Return questions more challenging.  Reviewing certain areas before 31 March may enable Scheme Return questions to be answered in a way that  better aligns with the Regulator's LDI Guidance. 

The new questions (which only need to be completed by schemes using leveraged LDI) include the following:

There are additional technical details to be considered in relation to these questions beyond those noted above, where investment expertise may be needed.  Our Pensions Sector Group is also on hand to help you consider whether any relevant LDI documentation might need to be updated, for the purpose of the Scheme Return or to ensure compliance with the LDI Guidance.

Since October 2022, the Regulator has been responsible for monitoring and enforcing trustees' compliance with requirements on tendering for fiduciary managers and setting objectives for investment consultancy providers. Trustees must now provide specific information about their fiduciary managers and investment consultants, including dates of appointment and whether and when objectives for consultants were last set and reviewed.

While these new information requests are not technically complex, trustees will need to ensure this information is collected in time for completion of the Scheme Return, and consider how records of such information will be captured going forward to facilitate completion of future Scheme Returns.

Information is required on AVC providers, including details of how many members are invested with each provider.

Schemes must provide details of their Pensions Dashboards "primary contact", who must be a trustee. This person will receive further updates and information from the Regulator about Pensions Dashboards. As a practical point, trustees should remember to update those details if and when any change is made to relevant personnel – or they may miss out on important updates!

Trustees should:

• Assess the new information that is required and identify if and what additional information may need to be obtained from third parties or collated from existing sources of information to be able to answer the new questions. They should make sure this information is available to those individuals responsible for completing the Scheme Return on behalf of the trustee. Trustees will need to consider who should be the designated contact for Pensions Dashboard purposes.
  
  
• Engage with any relevant advisers and providers well in advance of the 31 March 2024 Scheme Return deadline where additional advice or technical input is needed to help the trustee answer the new questions, in particular the more detailed questions around LDI mandates.
  
  
• Consider (with input from relevant advisers) whether any legal documentation or existing processes and scheme governance systems should be updated, including whether there are any steps that should be taken before 31 March 2024 to enable more robust answers to be given to certain  questions.

Some of these new questions may well be amended or replaced in future years as the Regulator assesses their effectiveness from responses received.  We expect, however, that the information and governance points they address are likely to remain relevant.

The scheme trustee is responsible for ensuring the Scheme Return is completed and for the content of what is submitted. It is important that careful consideration is given to answering the Scheme Return questions accurately as knowingly or recklessly providing false or misleading information is a criminal offence! If the Scheme Return deadline is missed, trustees may also be liable to pay a fine.  

This may be the time for a wider review by trustees of their processes for completing the Scheme Return. The Regulator's new General Code reminds trustees that they should have measures in place to review and ensure the accuracy of the information submitted. The Regulator has also tightened its expectations on how quickly trustees should update changes in registrable scheme information (some of which is included in Scheme Returns), which the Code suggests should be provided "at the very latest" within 5 working days of the trustee becoming aware of the change.