ukia_20240024_en.pdf impact assessment for DB funding code

1
Title: The Occupational Pension Schemes (Funding and
Investment Strategy and Amendment) Regulations
IA No:
RPC Reference No:
Lead department or agency: Department for Work and Pensions
Other departments or agencies: The Pension Regulator,
Government Actuary’s Department
Impact Assessment (IA)
Date: October 2023
Stage: Final
Source of intervention: Domestic
Type of measure: Secondary legislation
Contact for enquiries: Zaynab Yasmeen
Summary: Intervention and Options RPC Opinion: GREEN
Cost of Preferred (or more likely) Option (in 2019 prices)
Total Net Present
Social Value
Business Net Present
Value
Net cost to business per
year
Business Impact Target Status
Non Qualifying Regulatory
Provision
£177.6m £177.6m -£20.6m
What is the problem under consideration? Why is government action or intervention necessary?
The majority of Defined Benefit (DB) pension schemes are now closed to future accruals and schemes are maturing; this
makes longer-term strategic thinking increasingly important. Most DB pension schemes are well managed, and trustees
are planning for the longer term; however, this is not universal. Some schemes take a short-term view of funding
requirements and do not effectively set an investment strategy to manage their long-term obligations. Around one-third of
DB schemes are currently in deficit. Severely underfunded schemes present a risk to pension members, the Pension
Protection Fund (PPF) (which protects schemes where employers become insolvent) and other PPF levy payers.
Currently, where the Pensions Regulator (TPR) believes a scheme’s technical provisions are too optimistic or their
recovery plan inappropriate, they may open a case for further investigation. However, there is a high requirement of
scheme-specific evidence, analysis and modelling required to generate a persuasive case and there is significant time,
cost and resource burden to bring regulatory action, including enforcement.
What are the policy objectives of the action or intervention and the intended effects?
With around £1.7 trillion of assets across over 5,000 schemes and supporting nearly 10m members (as of March 2022),
the DB sector is a crucial sector for the UK population. The policy objectives are to support all pension scheme trustees
and sponsoring employers to plan and manage their funding and investment decisions with a clear strategy to ensure
pensions and other benefits can be provided over the long term. By providing clearer funding standards for schemes, this
should enable TPR to intervene more effectively to protect members’ benefits. This will further reduce the risk of claims on
the PPF, helping members get their full pension entitlement, and reduce the costs to fund the PPF if fewer schemes have
inappropriately weak technical provisions.
What policy options have been considered, including any alternatives to regulation? Please justify preferred
option (further details in Evidence Base)
Option 0 – Do nothing. Around one-third of schemes estimated to be in deficit, an increasing number of maturing DB
schemes, and the current threshold for intervention against a scheme being high and costly. While option 0 would not
impose additional requirements on business, this is outweighed by the foregone benefits and therefore a “do nothing”
option is not considered to be appropriate.
Option 1 - Making the DB Funding Code of Practice enforceable. Primary and secondary legislation constrain what can be
provided for in the code. and the provisions of the code are not themselves legally binding. As such, option 1 is less likely
to change behaviour, strengthen enforcement or improve scheme funding. Therefore, we do not consider this to be a
viable option.
Option 2 – Introducing secondary legislation to provide detail of the requirements in the Pension Schemes Act 2021 is the
preferred option as it will impose a duty on trustees to have a funding and investment strategy to ensure pensions and
other benefits are provided over the longer term. This will support trustees and employers to plan and manage their
scheme funding effectively over the long term and enable the pensions Regulator to intervene to protect member benefits
when needed. Regulations also provide clearer principles to determine what is meant by an appropriate recovery plan.
Will the policy be reviewed? It will be reviewed. If applicable, set review date: 04/2029
Is this measure likely to impact on international trade and investment? No
Are any of these organisations in scope? MicroYes
Small
Yes
Medium
Yes
LargeYes
What is the CO2 equivalent change in greenhouse gas emissions?
(Million tonnes CO2 equivalent)
Traded:
N/A
Non-traded:
N/A
I have read the Impact Assessment and I am satisfied that, given the available evidence, it represents a
reasonable view of the likely costs, benefits and impact of the leading options.
Signed by the responsible
MINISTER
Paul Maynard,
Minister for Pensions Date: 24 Jan 2024

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Summary: Analysis & Evidence Policy Option 2
Description:
FULL ECONOMIC ASSESSMENT
Price Base
Year
PV Base
Year
Time Period
10 Years
Net Benefit (Present Value (PV)) (£m)
2019 2020 10 years Low:
- £5557.4m
High:
£5588.2m
Best Estimate:
£177.6m
COSTS (£m) Total Transition
(Constant Price) 10
Years
Average Annual
(excl. Transition) (Constant Price)
Total Cost
(Present Value)
Low £13.9m £310.5m £2,777.8m
High £42.0m £938.3m £8,337.3m
Best Estimate £28.1m £634.7m £5,677.1m
Description and scale of key monetised costs by ‘main affected groups’
All schemes in the private-sector DB universe are in scope for the Regulations (with exemptions for some smaller
schemes).).. The main cost will be to schemes/employers where there is a need to increase Deficit Reduction
Contributions (DRC) to help increase the funding position through the recovery plan. For a modelled 1,200 schemes,
this may lead to a total increase of around £7.1bn payments over the 10-year period from the employer into the scheme.
We also estimate there will be a combination of one-off costs (including familiarisation costs and implementing a
Funding & Investment Strategy and Statement of Strategy) and ongoing costs (including submitting actuarial statements
and reviewing the strategies). These are estimated to be around £35m in year 1 and around £5m in years 2 to 10.
Other key non-monetised costs by ‘main affected groups’
There may be a cost to pension savers. Members of open cost-sharing pension schemes may see some of the costs
associated with the regulations passed on to members, either directly (higher contributions) or indirectly (such as wage
impacts). However, as only 10% of schemes are still open to new members; cost-sharing schemes are a small minority,
therefore we do not anticipate any material impact on members in aggregate because of this. There may be further
costs to TPR in relation to monitoring compliance.
BENEFITS (£m) Total Transition
(Constant Price) Years
Average Annual
(excl. Transition) (Constant Price)
Total Benefit
(Present Value)
Low £0.0 £316.7m £2,779.5m
High £0.0 £928.4m £8,366.0m
Best Estimate £0.0 £653.5m £5,854.7m
Description and scale of key monetised benefits by ‘main affected groups’
While some schemes may have to increase their DRC payments as a result of changes to funding targets and recovery
plans, there will be some schemes who will move their assumptions in line with the regulations. This may be weaker
than they previously calculated (e.g., were previously applying a lower discount rate) resulting in schemes having lower
deficits (or no deficit at all). Consequently, schemes may “level down” their DRCs and invest in higher risk assets whilst
still reaching full funding within a reasonable period. Around 1,400 schemes are estimated to be in scope for this, with
their DRCs decreasing by around £7.4bn over the 10-year period.
Other key non-monetised benefits by ‘main affected groups’
There are benefits we have been unable to monetise, including benefits to members (as a result of better scheme-
funding, members are more likely to get a better outcome by receiving more of their pension entitlement even if the
sponsoring business becomes insolvent). This will also support the PPF as better scheme-funding reduces the
requirement to enter the PPF in the event of employer insolvency.
Key assumptions/sensitivities/risks Discount
rate (%)
3.5%
Data used in the underlying assumptions and analysis is correct as of March 2021 – therefore more recent market
developments (particularly the rise in interest rates and gilt yields – which impact the estimated liabilities) are not
captured in the modelling however will make a significant difference with a greater number of schemes now better
funded. In addition, we model the DB universe using a counterfactual and ‘fast-track’ approach only; many schemes are
likely to take a more “bespoke” approach (this is discussed further). We do not have evidence on how schemes may
respond to the rules in this way, therefore in the absence of any evidence we have assumed for our central approach
that in aggregate, where required, 50% of schemes will change their behaviour and adopt the Fast Track approach.
BUSINESS ASSESSMENT (Option 1)
Direct impact on business (Equivalent Annual) £m: Score for Business Impact Target (qualifying provisions only) £m:
Costs: £659.5m Benefits: £680.2m Net: -£20.6m
-£103.1m

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Contents
Impact Assessment (IA)...............................................................................................................1
Summary: Intervention and Options.............................................................................................1
RPC Opinion: .............................................................................................................................1
Summary: Analysis & Evidence Policy Option 2........................................................................2
Introduction ..................................................................................................................................4
Evidence Base.............................................................................................................................6
Problem under consideration and rationale for intervention.........................................................6
Rationale and evidence to justify the level of analysis used in the IA (proportionality approach).8
Description of options considered..............................................................................................10
Policy objective ..........................................................................................................................11
Summary and preferred option with description of implementation plan....................................11
Monetised and non-monetised costs and benefits of each option..............................................12
Direct costs and benefits to business calculations.....................................................................35
Risks and assumptions ..............................................................................................................37
Impact on small and micro businesses ......................................................................................38
Wider impacts ............................................................................................................................41
A summary of the potential trade implications of measure.........................................................43
Monitoring and Evaluation..........................................................................................................43
Annex 1 – TPR and GAD Modelling Assumptions .....................................................................45
Annex 2: DRC Figures used for the EANDCB ...........................................................................51

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Introduction
1. A Defined Benefit (DB) pension is a promise from the sponsoring employer to pay a
predetermined level of pension, usually based on final salary (or career average salary) and
length of service, as set out in the scheme rules, regardless of economic factors.
2. The employer contributes to the scheme and is responsible for ensuring there’s enough money
when members retire to pay the promised pension income. Many schemes with active members
(just under half of DB schemes are open to new members or open to benefit accrual for existing
members1
) will also have employee contributions and tax relief. The scheme will pay out a
secure income for life which normally increases each year to give a measure of inflation
protection (depending on when the pension was built up, and the scheme rules). This means
DB schemes have a number of risks, including longevity risk and investment return risk; both
borne by the scheme and its sponsoring employer (members generally only bear risk when the
scheme is underfunded and winds up as a result of employer insolvency).
3. A DB scheme’s funding position is the difference between the assets the scheme holds (based
on contributions and investment return) and the net present value of its liabilities (how much it is
expected to have to pay out to its members). This means improvements in the funding position
can arise through:
Greater pension contributions for open schemes made by the employee or employer
(increasing assets)
Investment performance from the stock of assets (increasing assets)
Deficit Reduction Contributions (DRCs) made by employers to help the funding
position of the scheme (increasing assets)
Higher interest rates which lower the value of the expected level of liabilities due to be
paid out by the scheme (as liabilities are discounted by a rate of return).
Lower life expectancies as schemes will have to pay out a pension for a shorter period
of time (lowering liabilities)
4. DB liabilities, however, inherently carry an element of uncertainty as it is impossible to estimate
future longevity or investment returns with certainty. There are a range of DB scheme liability
measures, each designed and used for a specific purpose. They differ in the way the
assumptions needed to assess scheme liabilities (like future investment returns) are made. For
example, one measure set out in legislation for the purposes of assessing funding needs is the
Statutory Funding Objective (SFO). This is a ‘going concern’ assessment of whether the fund
will have sufficient assets to meet its liabilities. This is a measure used to assess if a deficit
recovery plan (RP) is needed. The precise method of measurement and assumptions made
varies from scheme to scheme according to the circumstances but should be prudent. The
statutory funding objective requires a scheme to have sufficient assets to cover their liabilities
(also called Technical Provisions (TPs)). The scheme’s TPs must be calculated in a way that is
consistent with the funding and investment strategy as set out in the statement of strategy.
5. DB schemes may have different strategies and objectives regarding how they are run in the
longer-term (a long-term objective). Setting a long-term objective is good practice, but it is not
mandatory. Examples of an acceptable long-term objective could be to:
Reach low dependency on the sponsoring employer by the time they are
significantly mature.
Buy-out by a set time with an insurer.
Enter a consolidator, such as a Superfund2
, within an agreed timeframe.
1
https://www.ppf.co.uk/sites/default/files/2022-11/PPF_PurpleBook_2022.pdf
2
A superfund is a consolidator body which replaces sponsoring employers with additional assets held in reserve (a capital buffer). The capital
buffer may be provided by investors seeking profit and a payment from the sponsoring employer ending its liability. More info can be found here:
https://researchbriefings.files.parliament.uk/documents/CBP-8775/CBP-8775.pdf

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6. A scheme’s funding position is normally checked annually, and an actuarial valuation is
submitted to TPR at least every three years.
7. There have been significant changes in the structure of the overall pension landscape as
employers have moved away from providing DB benefits and are instead favouring Defined
Contribution (DC). The Defined Benefit pension sector has therefore changed over recent years
with latest annual estimates in March 2022 showing on a PPF s179 basis3
:
5,131 private sector DB schemes – a fall by almost a third over the last 10 years – and
only around 10% are now “open” for new members to join and contribute to.
There are less than 1m active DB members in private sector schemes but there are still
over 9 million members who will depend on their DB pension in retirement.
There has been an improvement in funding ratios over the last decade with DB
schemes having just under £1.7 trillion assets and just under £1.5 trillion liabilities (giving
a funding ratio of 113%).
However, with changing economic assumptions, a timelier but less robust measure (the PPF
7800 Index), shows in March 2023 DB assets were around £1.4 trillion and liabilities around
£1.1 trillion, with an average funding ratio of 133% and fewer than 800 schemes being in deficit.
Although the DB universe has been declining, particularly over the last two decades, within our
modelling/costings, we assume the number of DB schemes in existence to be flat over the 10-
year appraisal period and do not account for potential further consolidation in the DB market.
This is as it cannot be known which schemes may close/buyout and given the slow rate of
decline of DB schemes, we do not anticipate consolidation would make a material difference on
the estimated costs. This is further discussed in paragraph 28 on proportionality.
8. Despite this, the reduction in DB schemes has significantly slowed in more recent years; the
number of DB schemes fell by less than 2% last year.
9. Given the size of DB assets, and with over 9 million members receiving DB benefits as part of
their retirement provision, the sector is of critical importance. DB pension schemes are also (in
aggregate) large institutional investors, helping to provide the investment needed to fund new
businesses and finance government debt.
10. However, the picture is varied at a more granular level4
. For example, Purple Book 2022 shows
7% of schemes have more than 5,000 members but hold around 75% of DB assets
whereas more than a third of schemes have less than 100 members but hold around 1% of
assets. Although most schemes are effectively managed, we know some schemes are not, and
without clearer funding standards can mean real deficits may be hidden from TPR through
schemes applying greater liability discounting. Severely underfunded schemes present a risk to
members, the Pension Protection Fund (PPF)5
and ultimately other PPF levy payers. On a buy-
out basis (the amount needed to move the scheme into an insurance scheme and to provide full
scheme benefits, rather than reduced compensation payable from the PPF)) the funding ratio
decreases significantly to 79.2%, with the majority of schemes (4,515) of schemes being in
deficit. There are also a significant number that have no/limited long term funding plans in place.
11. As DB schemes mature (over one-third of schemes have liabilities accounting for over 50% of
pensioner liabilities), it is important that the new and increased funding and investment risks
are effectively managed to protect members and PPF.
3
Figures in the following paragraph are all taken from https://www.ppf.co.uk/sites/default/files/2022-11/PPF_PurpleBook_2022.pdfs.179 basis
is, broadly speaking, what would have to be paid to an insurance company to take on the payment of PPF levels of compensation
4
Further breakdown on scheme funding levels and asset allocation are taken from https://www.ppf.co.uk/sites/default/files/2022-
11/PPF_PurpleBook_2022.pdf
5
the statutory public corporation protecting savers of a DB scheme when an employer becomes insolvent: https://www.ppf.co.uk/about-us/who-
we-are

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12. In the usual course of business some employers will become insolvent, and Government
cannot prevent this. When this happens, the pension scheme goes into PPF assessment and
the PPF assess whether the scheme could secure members benefits on the insurance market.
Where a pension scheme is unable to secure members benefits at least at the PPF
compensation levels on the insurance market, the PPF will provide compensation. If the
pension saver has not reached the scheme’s normal pension age when the employer became
insolvent, the saver will see a reduction in payments to 90 per cent of the scheme pension on
the insolvency date6
.
13. The financial strength of a sponsoring employer (the employer covenant) can deteriorate
quickly and with limited notice. It is therefore vital schemes plan for the longer term and consider
the risks to funding, investments and the sponsoring employer in an integrated way, which will
ensure they are well-placed to provide members with the best possible chance of receiving the
full level of benefits they have been promised.
How the landscape has recently changed over 2022
14. The funding position of DB schemes has been improving over time and many schemes now
have a funding surplus. This has been due to a number of factors, including changing
macroeconomic conditions and employers increasing their Deficit Reduction Contributions
(DRC). According to the PPF Purple Book, on a s179 basis, the aggregate funding ratio has
increased from 83.4% in 2012 to 113.1% in 20227
.
15. The funding position has further improved throughout 2022 as a result of increasing interest
rates – the Bank of England rate was 0.25% at the start of 2022 and reached 3.5% by the end
of 20228. This, along with other economic factors, has contributed towards long term gilt yields
rising (which lowers the estimated DB liabilities) and, as a result, the aggregate DB scheme
funding position improved significantly. This is demonstrated by the PPF 7800 Index9 with
funding ratios increasing from 111% (March-22) to 133% (March-23) again on a s179 basis.
16. Due to the time lags on data availability, continued market volatility, and modelling time needed,
our modelling does not account for the latest market developments. This is discussed
further in the ‘Rationale and evidence to justify the level of analysis used in the IA’ section
below.
Evidence Base
Problem under consideration and rationale for intervention
17. As outlined above, as DB schemes mature, it is important that new and increased risks are
managed effectively to protect members and the PPF as well as limiting the need for mature
schemes to call on employers for additional funds. Given this context, the 2018 White Paper
‘Protecting Defined Benefit Pension Schemes’10
highlighted two ways in which the existing DB
funding regime was not working effectively:
6
There may be other restrictions applied, such as inflation protections. More detail is applied here:
https://www.ppf.co.uk/our-members/what-it-means-ppf?_sm_au_=iVVRMnJTQ0MLsrFQW2MN0K7K1WVjq
7
https://www.ppf.co.uk/sites/default/files/2022-11/PPF_PurpleBook_2022.pdf https://www.ppf.co.uk/sites/default/files/2022-
8
https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
9
https://www.ppf.co.uk/ppf-7800-index
10
https://www.gov.uk/government/publications/protecting-defined-benefit-pension-schemes

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a) With the majority of DB pension schemes now closed to future accruals and maturing,
longer-term strategic thinking is essential. Some schemes take a short-term view of
funding requirements and do not effectively set an investment strategy to manage their
long-term obligations.
b) It can be difficult for TPR to intervene to protect member benefits when needed, due
to a lack of evidential weight. Currently, where TPR believes a scheme’s technical
provisions are imprudent or their recovery plan inappropriate, they may open a case for
further investigation. There is a high level of scheme-specific evidence, analysis and
modelling required for TPR to generate a persuasive case and there is a significant time,
cost and resource burden to bring regulatory action, including enforcement. TPR are a
risk-based regulator that focuses its resources on non-compliance, and therefore it is vital
it has the tools to take action when necessary.
18. The Pension Schemes Act 2021 introduced a new requirement for DB schemes to have a
funding and investment strategy for the purpose of ensuring pension and other benefits under
the scheme can be paid over the long term. This includes the need for them to reach a point of
low dependency on the employer by the time they are significantly mature and have a journey
plan to reach that aim. Schemes are also required to report progress against their targets,
including the main risks and mitigations, to TPR in a statement of strategy. The Occupational
Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023 set
out the detail of these new arrangements.
19. This legislation, supported by TPR’s revised DB Scheme Funding Code of Practice, will provide
clearer funding standards to support trustees and employers in planning their scheme funding
over the longer term and enable TPR to intervene more effectively to protect members when
needed. It will require trustees to specify the funding level the trustees or managers intend their
scheme to have achieved by the relevant date and will provide principles for the funding and
investment risk the scheme can take along the ‘journey plan’ before reaching that date.
20. The rules should apply flexibly to the particular circumstances of individual schemes and their
sponsoring employers. While most employers and trustees work well together and use the
flexibilities of the current funding regime reasonably, good practice is not universal. These
measures aim to ensure those outliers now follow best practice, increasing the likelihood that
schemes can meet their objectives of funding the pension benefits promised to their members.
21. By ensuring schemes are effectively setting their investment strategies and journey plans (the
path between existing date and relevant date for reaching significant maturity), and better
managing their long-term obligations, schemes will be better prepared to anticipate and manage
scheme funding risks. The Regulations will result in:
22.
o Members having a greater probability of improved outcomes as failure of a
sponsoring employer or the DB scheme could result in less being received than
promised. If the pension saver has not reached the scheme’s normal pension age when
the employer became insolvent, the saver will see a reduction in payments to 90 per cent
of the scheme pension in the PPF on the insolvency date11.
o Reduced value of claims on the PPF reducing the levy required from other schemes to
support the PPF in their reserves (reducing scheme costs and improving their funding
position). This could be a benefit to all schemes.
11
There may be other restrictions applied; more detail of impacts on payments can be found here:
https://www.ppf.co.uk/our-members/what-it-means-ppf

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o Ensuring funding and investment risks are supportable. Regulations would link the
maximum level of funding and investment risk schemes can take – primarily – to the
employer covenant, as well as the maturity of the scheme. This is particularly important
given the size of DB assets and the time until pensions are paid out getting closer for the
majority of schemes. Additionally, this aims to avoid an investment risk spiral, whereby
mature schemes invested in growth assets may face market volatility. If there are large
asset losses due to market falls, the scheme may not have time for asset prices to recover
to pay full pension benefits, and thus invest in further riskier investments.
o Schemes will have less reliance on employers. The regulations require schemes to
reach a point of low dependency on their employer by the time they are significantly
mature. This will limit the need, or expectations, that additional employer contributions will
be needed from that point onwards.
o Strengthening the Regulator’s ability to enforce Defined Benefit scheme funding
rules, providing clarity on how scheme’s technical provisions can be calculated prudently
and what constitutes an appropriate recovery plan.
o Clarity and predictability for sponsoring employers on long-term plans as the scheme
matures.
Rationale and evidence to justify the level of analysis used in the IA
(proportionality approach)
23. Our analysis makes a best estimate on our assessment of the potential costs and benefits from
the legislative changes that arise from the regulations. However, it is important to note there
are, practically, two aspects to consider for these changes:
The proposed legislation outlines the framework and powers of the proposed changes
TPR’s Code of Practice and Guidance will contain further detail on applying the
legislation framework into practice. This is currently in draft format12
and therefore subject
to change. Once the Code is finalised, TPR plan to produce a Business Impact Target
assessment.
24. Our modelling and evidence consider both aspects in the interests of transparency and
recognising the legislation enables the Code to be applied in practice. However, it is important
to note that as the code is subject to change, these costs/benefits may subsequently change.
We will continue to monitor this closely and provide any updated assessments where needed.
25. We have worked closely with the Government Actuary’s Department (GAD) and TPR to best
estimate how these regulations might be applied in practice to be open and transparent about
the potential impacts of the changes. This has used a range of data and inputs, including:
Scheme funding data for the DB universe (as of March 2022) which is held by TPR as
part of schemes’ returns and recovery plans submitted. This is the most complete set of
data on the DB pensions universe.
TPR modelling to project forward assets and liabilities across each scheme.
GAD modelling13
to estimate long-run impacts over a 40-year horizon and the impacts
on PPF and members.
Purple Book and other surveys which outline the DB universe in detail, particularly
around funding positions, and the level of compliance around long-term objectives and
more recent movements in the funding positions of DB schemes.
12
Latest draft available here: https://www.thepensionsregulator.gov.uk/en/document-library/consultations/draft-defined-benefit-funding-code-of-
practice-and-regulatory-approach-consultation/draft-db-funding-code-of-practice
13
Available here: https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/pdf/modelling-the-universe-of-defined-
benefit-pension-schemes.ashx

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Feedback from the consultation on potential implementation costs where we received
92 consultation responses in total. These responses came from schemes, advisory,
consultancy & umbrella/representative organisations, employers, actuaries, individual
trustees and scheme members, helping build on our consultation IA.
26. Our modelling of schemes focuses on the “Fast Track” parameters outlined by TPR in their
consultation. Fast Track is the regulator’s view of tolerated risk for a scheme and hence the
regulator is unlikely to have material concerns with a scheme whose funding approach follows
or is more prudent than that of Fast Track. Fast Track has been designed by TPR as a set of
quantitative parameters in respect of technical provisions, investment risk and recovery plan
length that need to be met. However, some schemes may follow the “Bespoke” approach which
is intended to allow trustees to maintain the flexibility to select scheme-specific funding solutions
if the approach and actuarial valuation meet legislative requirements and follow code principles.
27. Whilst we recognise schemes will interpret and follow the regulations in a large number of
ways, we have modelled how schemes current funding approach compares against Fast Track
(discussed in further detail later) to provide our best estimate of the potential impacts. We feel
this is proportionate to help demonstrate the impacts whilst recognising many schemes will take
a more bespoke approach. This means our modelling is not definitive and subject to a wide
range of behavioural changes that would change the results (hence extra sensitivity analysis
produced). This is particularly the case as there is significant scheme specific flexibility available
through the Bespoke approach. Many schemes, and in particular larger schemes, will likely take
a more sophisticated approach than that set out in Fast Track, and taking advantage of these
scheme specific flexibilities may enable them to reduce costs compared to the inherently
conservative and prudent Fast Track.
28. Further, due to the time lags on data availability, continued market volatility, and modelling time
needed, our modelling does not account for the latest market developments since the rise in
interest rates (and gilt yields) since 2022. Data is modelled as of March 202114
.
29. For both these reasons, this means our modelling may overestimate the potential costs (and
underestimate the benefits); however, sensitivity analysis is included to help highlight how
numbers may change. In addition, financial markets are inherently volatile and therefore any
modelling can never fully capture the very latest position.
30. Within our modelling/costings, we assume the number of DB schemes in existence to be flat
over the 10-year appraisal period and do not account for potential further consolidation in the
DB market. Although the DB universe has been declining, particularly over the last two decades
and for open schemes, consolidation in the market has significantly slowed in recent years with
the number of schemes being less than 2% lower in 2022 compared to 202115
; this slowdown
may continue. Although it is possible DB schemes continue to slowly decline, this has not been
modelled due to:
• Modelling challenges - Allowing for employers to fail, or schemes to consolidate/buyout
would involve making many subjective assumptions about the wider economic
environment and trustee sentiments which would appear spurious. It cannot be known
which schemes may sell to an insurer or enter the PPF (if their employer went insolvent).
• No material change – Given the very slow rate of decline, we do not anticipate
consolidation would make a material difference on the estimated costs. This is
particularly the case when the majority of familiarisation costs are upfront and would be
required of all schemes currently in existence. Allowing for consolidation/buyout would
14
Though based on the latest available information (the start of 2022); to be consistent across schemes, March 2021 is the modelling start
date.
15
Purple Book 2022, https://www.ppf.co.uk/-/media/PPF-Website/Public/Years/2022-11/PPF_PurpleBook_2022.pdf

10
not be expected to materially impact the DRC modelling as schemes looking to
buyout/consolidate would need to be in surplus on a Fast Track basis to do so and given
the timescales involved, would need to have been significantly well-funded as at 31
March 2021. Therefore, in the model itself they would likely be showing no or very little
costs in the estimated DRC impact in any event, meaning while the modelling does not
account for scheme buyout, we do not believe this significantly impacts the costs
modelled.
• Impacted schemes could not exit the market – Those schemes required to improve
funding targets could not exit the market unless they significantly improve their funding
position in excess of that modelled required in order to reach a buy-out funding position.
This would take many years in excess of the 10 years modelled in order to improve
funding levels to those of buyout and further years to reach a settlement with an insurer
for buy-out. Therefore would not change the results.
• Proportionality – To capture the potential exits of DB schemes would involve significant
modelling adjustments which we do not feel is proportionate in the time available, given
the low impact it would have on the modelling. However, we have ensured sensitivity is
presented throughout our analysis.
31. Equally, the analysis assumes no DB schemes will be created over the time period (despite
higher Gilt yields leading to improved funding levels potentially making schemes more
affordable). We do acknowledge this is a risk and the modelling on changes to DRC
payments does include sensitivity analysis.
Description of options considered
Option 0: Do nothing
32. Leaving the system unchanged would not deliver improvements to the scheme funding regime.
There are still some schemes who are not planning effectively for the longer term and most
schemes are maturing. Funding standards would lack clarity, which would continue to lead to
poor decision making by schemes, and TPR would continue to find it difficult to enforce.
Although many schemes have a long-term plan in place, evidence suggests that some do not,
and some plans are only aspirational (see paragraph 41 for more detail). As a result, members
of these schemes would be at risk of poorer retirement outcomes.
Option 1: Making the DB Funding Code of Practice enforceable
33. Not a viable option. Primary and secondary legislation constrain what can be provided for in
the code. The code sets out TPR’s expectations and provides examples or guidance on how
schemes should comply with the law. The provisions of the code are not themselves legally
binding but may be used as evidence in legal proceedings. As such, option 1 it is less likely to
change behaviour, strengthen enforcement or improve scheme funding. Therefore, this option is
not assessed in further detail.
Option 2: Introduce secondary legislation to provide detail of the requirements in the Pension
Schemes Act 2021:
34. Preferred Option. Introducing secondary legislation to provide detail of the requirements in the
Pension Schemes Act 2021 is the preferred option. This preferred option will impose a duty on
trustees to have a funding and investment strategy to ensure pensions and other benefits are
provided over the longer term. This will support trustees and employers to plan and manage
their scheme funding effectively over the long term and enable TPR to intervene to protect
member benefits when needed. This option will also require trustees to set out the funding and
investment strategy in a statement of strategy that is signed by the chair of the trustees on
behalf of the trustee board, who must appoint a chair if they do not already have one.
Furthermore, secondary legislation will provide clearer principles to determine what is meant by
an appropriate recovery plan.

11
Policy objective
35. There are two primary policy objectives:
o Support all pension scheme trustees and sponsoring employers to plan and manage
their funding and investment decisions with a clear strategy for ensuring pensions and
other benefits can be provided over the longer term.
o Provide clearer funding standards to enable TPR to intervene more effectively to protect
members’ benefits.
36. Taken together, the delivery of these primary policy objectives will underpin a new DB scheme
funding regime. This regime is intended to remain scheme specific and will continue to apply
flexibly to the circumstances of individual schemes and their sponsoring employers. The new
funding regime will also look to maintain a reasonable balance between the security of member
benefits and employer affordability. The Regulations and TPR’s DB funding code of practice will
complement the Government’s plans to enable schemes to invest more productively.
Summary and preferred option with description of implementation plan
37. The proposed regulatory intervention, through these regulations, delivers on the policy
objectives to require schemes to plan for the longer term and to provide clearer funding
standards to enable TPR to intervene more effectively when required. It will also deliver a
scheme funding regime that maintains a reasonable balance between the security of member
benefits and employer affordability and will continue to apply flexibly to the circumstances of
individual schemes and their sponsoring employers.
38. In summary, the Regulations outline:
o The funding and investment strategy must, as a minimum, follow the principle that by the
time the scheme is significantly mature there is low dependency on the sponsoring
employer with high resilience to funding and investment risks.
o The maximum level of funding and investment risk that the scheme can take before
significant maturity is dependent on the financial ability of the employer and contingent
assets to support the scheme and, subject to that, on the maturity of the scheme.
o That the funding and investment strategy must be determined or reviewed and if
necessary revised alongside each valuation, usually every three years, and after any
material change in the circumstances of the pension scheme or of the employer.
o More detailed requirements for the statement of strategy and for the chair of the
trustee board. The statement of strategy must include a section setting out what action
trustees would take should the risks faced by the scheme materialise. It must also
include a section setting out further information on the scheme’s asset allocation, how
trustees intend the asset allocation to change as the scheme moves along its journey
plan, and the level of risk attached to these investments.
o Amendments to the Occupational Pension Schemes (Scheme Funding) Regulations
2005 add a new requirement for scheme trustees and managers, in determining whether
a recovery plan is appropriate, to follow the principle that funding deficits must be
recovered as soon as the employer can reasonably afford.
39. DWP and TPR have undertaken extensive consultation on the draft Regulations and the draft
Code with sponsoring employers, scheme trustees and managers, and the pensions industry.
Building on feedback from the pensions industry, in order to allow open schemes more
flexibility, the regulations also more clearly outline the following:
o Trustees do not have to invest exactly in line with their funding and investment strategy
and increasing the flexibility of the low dependency investment allocation. This will
ensure trustees can continue to invest in a wide range of assets.

12
o Sponsoring employers’ sustainable growth must be considered when assessing when
they can reasonably afford to recover a deficit.
o Open schemes can take new members into account when calculating their maturity,
which will extend the time before they are expected to begin to de-risk and for those
schemes that are open to new members and who remain truly stable, then they will not
be expected to mature over time in any event
o To make clear that the determination of significant maturity can include an assumption for
future accrual and new entrants, no specific limit is placed in the regulations in order to
afford more flexibility to open schemes. However, the regulations make clear the
assumption must be based on the covenant of the employer.
40. Subject to Parliamentary approval, the current ambition is to allow sufficient time before the
Regulations and Code of Practice come into force to help schemes and employers plan for the
new Regulations. TPR will be responsible for the ongoing operation and enforcement of the
scheme funding regime.
Monetised and non-monetised costs and benefits of each option
Summary of key costs and benefits
Impact Summary Cost
Costs to business
Additional DRCs for
schemes paying more
The cost for schemes that face higher DRC
payments as a result of changes to the scheme
recovery plans and levels of liabilities
£7.2bn over 10 year period
(per year breakdown
discussed further below)
Implementation The implementation cost for scheme trustees
and actuaries to implement the funding and
investment strategy alongside a statement of
strategy.
£21.0m in year 1
Familiarisation The costs for scheme trustees and actuaries to
familiarise themselves with the new regulations
£15.8m in year 1
Ongoing costs –
Implementation costs
The cost for schemes who are currently in
surplus to submit actuarial valuations, and for all
schemes to update/review the FIS and SoS.
£5.4m per year (years 2 to
10)
Costs to members Most members should not face an increase in
costs; but there is a risk for those in a cost-
sharing scheme some costs may be passed on
or indirect impacts (such as wage impacts)
Non-monetised
Benefits to business
Reduced DRCs for
schemes paying less
Schemes that are more prudent than the new
minimum may decide to lower their DRC
payments as a result of the changes
£7.4bn over 10 year period
(per year breakdown
discussed further below)
Benefits to PPF The PPF will face an overall lower value of
claims against them
Non-monetised
Benefits to members There is a greater likelihood of DB members
receiving their full pension rather than at PPF
compensation levels as a result of schemes
being better funded.
Non-monetised

13
Counterfactual / Do Nothing
41. The latest data shows there are currently 5,131 private-sector DB schemes16
in 2022; for the
purposes of the calculations, all schemes are assumed to be in scope for the changes17
, though
paragraph 133 outlines where some schemes may be exempt..
42. The proposed regulations require schemes to set a funding and investment strategy. As part of
this, schemes must – as a minimum – target reaching low dependency on their sponsoring
employer by the time they reach significant maturity. Such a target, along with buying-out the
scheme’s liabilities by a set time or entering a consolidator, has previously been referred to as a
“Long-Term Objective” (LTO), and will continue to be referred to as a LTO below.
43. Analysis from TPR’s annual survey of trust-based occupational defined benefit (DB) pension
schemes shows around 90% of schemes have an LTO18
, meaning around 500 schemes do not
have one (and therefore will need to implement one for the first time to meet the regulations).
However, the survey also found two-thirds (68%) of trustees with an LTO said that this drove the
funding of the scheme, rather than being purely aspirational. Therefore, we consider that 3,100
schemes would already have a robust funding and investment strategy in place in the absence
of the regulations. This means around one-third of schemes with an LTO (1,500) will still need
to further implement a robust funding and investment strategy, alongside the 500 who do not
have one.
44. The proposed regulations will also require schemes to have a Chair of a scheme’s trustee
board. The Pension Schemes Act 2021 Enactment Impact Assessment outlined19
the impacts of
schemes being required to have a Chair. This impact assessment updates that analysis.
Previously, in 2015, around 15% of DB schemes were estimated to not have a Chair. We
expect this proportion has substantially lowered further given the increasing governance and
regulations placed on DB schemes. For those who do not have a Chair, we expect many will
have a de facto chair or rotate across Trustees.
45. To model the projected Deficit Reduction Contributions (DRCs) required from employers to
support schemes (see paragraph 82 for an explanation of the impacts), we have assumed all
schemes undertake a valuation as at the calculation date 31 March 2021 (the counterfactual
position) and then projected how the funding position will evolve over the next 10 years. In
reality, as all DB schemes are required to conduct an actuarial valuation of their scheme every
three years, the latest actuarial valuation will be distributed over a three-year period. Where
schemes are in deficit, they are required to submit their valuation and recovery plan to TPR.
The modelling under the counterfactual assumes
a) No change to existing funding strategy - Maintain existing approach for determining
financial assumptions (relative to gilt yields) and assume demographic assumptions have
not changed since the previous triennial valuation submitted to TPR.
b) 3-year average of historical DRCs – To estimate future DRCs, broadly the average of
the last 3-years’ worth of payments have been used and projected forward until a surplus
is reached in line with the proposed recovery plan at the previous valuation submitted to
TPR.
16
17
Legislation currently exempts certain schemes from the funding requirements in Part 3 of the 2004 Act. However, there are no estimates of
exempt schemes and as we consider the numbers to be minimal, we therefore consider all to be in scope; this may slightly overestimate the
costs.
18
https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/pdf/defined-benefit-schemes-survey-research-report-
2021.ashx and https://www.aon.com/getmedia/45633b07-629b-4809-b1d1-d50b29626ee4/The-DB-pension-risk-management-journey.pdf.aspx
19
https://www.legislation.gov.uk/ukpga/2021/1/pdfs/ukpgaod_20210001_en_001.pdf

14
c) De-risking – The projection of the liabilities and the assumed level of de-risking as the
scheme matures is dependent upon whether the scheme is open or closed.
d) Assets grow in line with expected returns using capital market assumptions on long-
run projected asset return levels and asset allocations based on previous valuation
submitted to TPR
Further detail regarding the assumptions and the modelling are discussed in Annex 1.
Scope
46. The whole private-sector DB universe, 5,131 schemes (in 2022), will be in scope. As outlined
above, the regulations only provide the framework, whereas the subsequent TPR code will
provide a more detailed overview of how schemes should interpret and apply them.
47. All DB schemes are impacted by the regulations – meaning around 5,100 schemes are in
scope as all will need to familiarise themselves with the regulations as a minimum. Stakeholder
feedback from industry suggests many have already started considering the proposed changes.
However, the number of schemes does not directly translate to the number of employers. PPF
data suggests that while there are 5,100 schemes in the DB universe, there are around 14,000
employers20
that sponsor a DB scheme.
48. In calculating the familiarisation, implementation and ongoing costs of the Regulations, we
assume all schemes will need to implement the requirements to provide information on their
‘journey plan’ (the period before a scheme reaches its relevant date) within the statement of
strategy, though some schemes may be exempt – see paragraph 133. Such information
includes how the funding level, investment allocation and risks are expected to change as the
scheme moves towards the relevant date. We recognise some schemes will already have
reached their relevant date, as defined by the Regulations and subsequent draft code, but we
do not have sufficient data to provide an accurate estimate of how many schemes have reached
this point. However, the number of schemes is estimated to be relatively low as a proportion of
the whole DB universe. The familiarisation, implementation and ongoing costs may, therefore,
be marginally overstated.
49. Our modelling of schemes focuses on the “Fast Track” parameters as a comparator as outlined
by TPR. This is the Regulator’s view of tolerated risk for a scheme and sets out a series of
quantitative parameters that need to be met in order to adopt a Fast Track approach. However,
some schemes may follow the “Bespoke” approach which is intended to allow trustees to still
have the flexibility to select scheme-specific funding solutions if the approach and actuarial
valuation meet legislative requirements and follow code principles. Therefore, although all
schemes are in scope (some schemes may be exempt as outlined in paragraph 133, however
we use the total number of DB schemes in our calculations), we recognise many may take a
different approach to the one we model (or may already be following similar requirements and
do not change their behaviour).
50. For the purposes of our modelling of DRCs, we assume the top 25 DB schemes (by asset size)
do not change their behaviour. Although they are in the calculations – we assume the
counterfactual and the proposed changes are the same for these schemes. This is based on the
assumption they are well run and governed; therefore, the expectation is they would largely
continue as they are and apply a bespoke arrangement (and therefore do not intend to follow
the Fast Track approach). Where a “Bespoke” option is taken; we are unable to estimate their
behaviour response to the Regulations. If these 25 schemes did make changes due to the
20
Purple Book 2022, figure 9.11, figure rounded to the nearest 1000. https://www.ppf.co.uk/-/media/PPF-Website/Public/Years/2022-

15
Regulations, this would have a significant impact on the final results; though our preliminary
analysis suggests this could be a further net business saving (rather than cost) given that of
these 25 schemes there are a greater number who are funding more prudently than Fast Track
than less prudently.
51. In addition, it is important to note our analysis assesses the costs/benefits across the DB
universe, stating the average across all schemes. We fully recognise the costs/benefits on an
individual scheme basis will be different compared to the average and will also be determined
by a number of factors, such as affordability, resources, and changing market conditions. Where
evidence is available, we have attempted to highlight the range of costs which could be faced
by schemes. This is further supported by the SAMBA.
52. Only our preferred option (regulation) is modelled

16
Familiarisation, implementation, and ongoing costs
53. Consistent with the Primary Legislation (Pensions Schemes Act 2021) Enactment Impact
Assessment1
and past pension impact assessments2
, we make several assumptions, based on
the best available evidence, around scheme and wage details. This is applied to the time
estimations of familiarisation and implementation of the regulations. These assumptions are:
• There are an average of 3.2 trustees3
per scheme (based on TPR Trustee Survey
data).
• The average hourly wage of a trustee is £32.604
(based on analysis of ONS’s Annual
Survey of Hours and Earnings).
• The average hourly fee of schemes seeking advice from actuaries and other
professionals (including legal, investment consultants and covenant consultants) is
£280.555
. This is based on analysis of actuarial team rates from the 2020 KGC
associates 9th actuarial survey, that gives information on fees, services and trends for
actuarial and administration providers. This encompasses a range of services we believe
is a more accurate estimate of the hourly costs schemes will face when seeking
professional support from external firms. An estimate from ASHE would only account for
hourly wages rather than additional costs which schemes may face when seeking
external advice/support. Given the complexity of the Regulations/Code and following
consultation feedback of the draft Impact Assessment, seeking a wider range of advice
was deemed more appropriate than past estimates used in previous IAs.
• There are currently 5,131 DB schemes6 in total (based on PPF’s 2022 Purple Book)
54. The table below highlights the familiarisation, implementation and estimated ongoing costs of
introducing the regulations to schemes. This totals around £36.8m in implementation costs
including familiarisation of the regulations (or around £7,000 per scheme – although as
mentioned above the costs faced at an individual scheme basis will be different compared to the
average depending on a number of factors discussed in more detail below) and around £5.4m
each year as ongoing costs (or around £1,100 per scheme). As outlined above, we recognise
this will vary significantly scheme-by-scheme.
1
2
As an example see: Disclose and Explain 2023 Impact Assessment https://www.gov.uk/government/consultations/broadening-the-investment-
opportunities-of-defined-contribution-pension-schemes/outcome/final-disclose-and-explain-impact-assessment-broadening-investment-in-
illiquid-assets
3
Trustee Landscape Quantitative Research 2015- Estimate based on Figure 3.2.3 Number of trustees by scheme size., page 14.
https://webarchive.nationalarchives.gov.uk/ukgwa/20170712122409/http:/www.thepensionsregulator.gov.uk/docs/trustee-landscape-
quantitative-research-2015.pdf
4
The median hourly wage for a corporate manager or director is £25.67 in the Annual Survey of Hours and Earnings 2022, Table 2.5a. This is
uplifted by 27% for overheads from the archived Green Book.
https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/occupation2digitsocashetable2
5
https://www.kgcassociates.com/surveys/ £280.55 is an average of the estimated Scheme Actuary, Actuary and Actuarial support hourly
charge out rate. We believe this is a good proxy for all scheme professionals’ hourly fees. https://www.kgcassociates.com/surveys/
6

17
7
68% of trustees with an LTO said that this drove the funding of the scheme, rather than being purely aspirational, therefore 32% have it as
aspirational, https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/pdf/defined-benefit-schemes-survey-research-
report-2021.ashx and https://www.aon.com/getmedia/45633b07-629b-4809-b1d1-d50b29626ee4/The-DB-pension-risk-management-
journey.pdf.aspx
Cost type Amount Scheme volumes Assumptions
Familiarisation –
one-off cost
£15.8m All 5,131 schemes will need
to familiarise themselves
with the regulations (some
schemes may be exempt as
outlined in paragraph 133,
however we use the total
number of DB schemes in our
calculations).
All trustees (3.2 on average) and
scheme advisors (including the
scheme actuarial team) are
involved. We assume they will
need 1 day (8 hours).
Implementation of
the funding and
investment
strategy (FIS) –
one-off cost
£12.3m Around 500 schemes do not
currently have an LTO.
1,500 schemes do not
currently have a robust LTO.
90% of schemes have an LTO.
Of this roughly a third (32%) are
purely aspirational and will
therefore also need to implement
a FIS.7
All trustees (3.2 on average), and
scheme advisors are involved in
this process. All require 2 days
(16 hours) to implement a FIS
Implementation of
the statement of
strategy (SoS) –
one-off cost
£8.8m All 5,131 schemes are in
scope. ( some schemes may
be exempt as outlined in
paragraph 133, however we
use the total number of DB
schemes in our
calculations).
There will be additional work
for the same schemes who
do not have a robust LTO in
place - for the journey plan
implementation, as part of
the statement of strategy.
All trustees (3.2 on average) are
involved in this process.
Trustees require 8 hours (1 day)
to implement the statement of
strategy.
Scheme advisors/professional for
the 2,000 schemes needing a
robust journey plan will be
involved, requiring 1 day (8
hours).
Ongoing
implementation
costs – annual
cost
£5.4m All 5,131 schemes will need
to review their FIS and SoS.
(some schemes may be
exempt as outlined in
paragraph 133, however we
use the total number of DB
schemes in our
calculations).
462 schemes per year are in
surplus, therefore are in
scope to submit their
actuarial valuations.
All trustees (3.2 on average) will
be involved in the process of
reviewing the FIS and SoS. As
will the scheme actuary. Trustees
will spend 8 hours (1 day)
reviewing/updating, and scheme
professionals will spend 1 hour
advising trustees.
Actuaries will need 1 hour to
submit scheme valuations to
TPR.

18
55. Whilst we recognise there may be some sponsoring employer costs involved (particularly for
larger schemes), there is also a likelihood some trustees will include employer representation.
Therefore, to avoid double-counting, we do not include extra sponsor costs.
Familiarisation costs
56. All trustees of schemes will need to familiarise themselves with the regulations and
requirements. Given the details of the requirements set out above, alongside the planned
length of the Regulations and TPR’s Funding Code, we assume that trustees will need
around one day (8 hours) to do this. Additionally, industry feedback suggest many schemes
are already planning in line with the draft regulations and draft funding code; this may lessen
the administrative burden on scheme trustees as when the final Regulations and Code come
into force. We also assume scheme professionals (actuarial team and other professionals),
hired to advise, or provide services related to the requirements set out in the Regulations,
will need to familiarise themselves. It is assumed this will be equivalent to 8 hours of external
scheme professionals’ time. Although familiarisation costs can be uncertain, we have drawn
on a number of sources to best estimate the potential cost and responded to industry
feedback. In particular:
• Consultation IA – We included an 8-hour estimate at the IA at consultation stage.
Feedback from the industry (92 respondents in total) found many agreed with the
projected costs we had estimated, with 92 consultation responses received in total.
These responses came from schemes, advisory, consultancy & umbrella/representative
organisations, employers, actuaries, individual trustees and scheme members. However,
there was a recognition that familiarisation and implementation costs should be split up
rather than considered collectively (which we have consequently done as a result of their
feedback).
• Feedback from industry – We have engaged with schemes and industry stakeholders
as part of the consultation to inform our cost assumptions.
• Feedback from industry – We have engaged with schemes and industry stakeholders
as part of the consultation to inform our cost assumptions.
• Working group with TPR and GAD - We used their extensive pension experience and
stakeholder discussions to help inform an appropriate time estimate. (and drawing on
similar initiatives,8
, where appropriate, to further support the 8-hour estimate).
This results in a total familiarisation cost of around £15.8 million9
.
Implementation of the funding and investment strategy
57. The funding and investment strategy includes the following elements:
o The way in which pensions and other benefits under the scheme will be provided over
the long term (referred to above as the Long-Term Objective (LTO)).
o The relevant date.
o The funding level and investment allocation as at the relevant date.
o Expected maturity of the scheme at the relevant date.
8
2023 Pensions Dashboard Assessment https://www.legislation.gov.uk/ukia/2023/64/pdfs/ukia_20230064_en.pdf
9
Calculation: [5131 x 8 x 3.2 x (£25.67 x 1.27)] + [5131 x 8 x £280.55)]

19
58. As set out above, we assume 90% of schemes already have a LTO in place, although 1,500
schemes have a largely aspirational plan, which does not drive scheme management and
funding decisions. These schemes, along with the remaining 500 schemes10 without a strategy,
will be required to change or introduce a long-term funding and investment strategy. Schemes
will need to set an LTO, which – as a minimum – will be low dependency on the sponsoring
employer, and trustees will need to plan and manage their scheme funding and investment in
accordance with that target.
59. This may involve trustee negotiations with their sponsoring business, as well as seeking advice
from actuaries, legal teams and other scheme professionals via consultancy firms. Associated
costs are expected to vary on a scheme-by-scheme basis – from negligible for those that
already have a clear strategy and just need to formalise it, to potentially material for those that
are currently applying a short-term approach to scheme management (focused only on the next
triennial review). Based on the consultation of the draft regulations and TPR’s Funding code, as
well as internal feedback from TPR and GAD actuaries, we assume it will take a combination of
all trustees of these schemes and scheme professionals 2 days (16 hours) to set the funding
and investment strategy. Based on these assumptions and figures, the implementation cost is
around £12.3 million11
.
Implementation of the statement of strategy
60. The regulations require trustees to set out the funding and investment strategy, in a statement
of strategy, alongside further information on the level of risk trustees intend to take, estimates of
the scheme’s maturity and the employer covenant; as well as commentary on how the strategy
is appropriate. This statement must be signed by the chair of the trustees on behalf of the
trustee board, who must appoint a chair if they do not already have one.
61. We assume all trustees will be involved in this process. Given the statement of strategy is
based on the funding and investment strategy, and there is already clear expectation placed on
trustees in the current DB code to document their approach to funding investments and risk
management, we assume the statement of strategy will take significantly less time to produce.
Our best estimate is all trustees will require 1 day (8 hours) to produce this. Applying the
assumptions outlined above and figures gives a cost estimate of around £4.3 million12.
62. Certain requirements related to the statement of strategy involve providing information on the
journey plan, including how the funding level, investment allocation and risks are expected to
change as the scheme moves towards the relevant date. Although there is already a clear
expectation placed on trustees in the existing DB code for schemes to document their approach
to funding, investments and risk management, we assume some schemes will require the
support/advice of scheme actuaries and external professionals.
63. TPR’s annual survey of trust-based occupational DB pension estimated around 70% of
schemes have a journey plan13
. This is roughly equivalent to the number of schemes that
said their LTO drove the funding of the scheme. It is very likely that the 3,100 schemes with
a robust funding and investment strategy in place will also have a journey plan set out.
10
= 5,131*0.1 = 513
11
Calculation: (16 x 3.2 x [1,478 + 513] x [£25.67 x 1.27]) + (16 x [1,478 + 513] x £280.55)
12
Calculation: 5,131 x 3.2 x 8 x (25.67 x 1.27)
13
2021.ashx and https://www.aon.com/getmedia/45633b07-629b-4809-b1d1-d50b29626ee4/The-DB-pension-risk-management-journey.pdf.aspx

20
Based on these assumptions, we assume the remaining number of schemes (around 2,000)
will need a day of external scheme professionals’ time.
64. Industry feedback on the consultation cost estimates were, overall, quite wide-ranging with
disagreements on the additional level of administrative burden and level of familiarisation
required (some believed it would lead to minimal costs; some much greater). Consequently,
we have applied a wide-range of sensitivity to our time-estimates - reflecting the fact that the
DB universe is diverse and important to reflect the variation of views.
65. All assumptions on costs of implementing have been shared with industry (to seek
feedback) via a consultation IA and extensively discussed with pension experts in GAD,
TPR, and DWP to arrive at the most robust estimate possible. Based on these discussions,
we concluded the remaining number of schemes (around 2,000) will need a day (8 hours) of
external scheme professionals’ time. This assumption is estimated from how many additional
hours a scheme professional (i.e., an actuary) would need to assist trustees to set the
journey plan. The cost estimate of this is around £4.5 million14.
66. The Pension Schemes Act 2021 Enactment Impact Assessment15
outlined the impacts of
schemes being required to have a Chair. Currently, having a Chair (of a scheme’s trustee
board) is not a legislative requirement in DB, but schemes may have a requirement in their
individual scheme's rules. The Pension Schemes Act 2021 Enactment Impact Assessment
referred to TPR’s 2015 Trustee Landscape Quantitative Research16, which found that 85% of
DB schemes (and 92% of hybrid schemes) already had a Chair of their trustee board; the bigger
the scheme, the greater the likelihood of having a Chair. There were also expectations from a
number of schemes to appoint a Chair in the next 12 months.
67. However, given the increasing requirements on DB schemes and Regulations in place, we
expect the number of schemes without a Chair is significantly lower than first estimated in 2015.
Where a formal Chair is not currently in place, we expect a “de facto” Chair or a rotating Chair is
already applied. Further, we may expect a Chair to be appointed from the existing Trustees (not
a new hire) nor would we expect large salary increases to be offered to a new Chair, particularly
for smaller schemes with limited resource budgets. Based on our engagement with TPR and the
industry, we now therefore anticipate costs of establishing a Chair will be negligible.
68. In addition, a new requirement as part of the statement of strategy will be placed on schemes
that are in surplus to submit their actuarial valuations. Schemes that are in deficit are currently
required to submit this to TPR at least every three years. Our estimations of the impacts of this
requirement were set out in the Pension Schemes Act 2021 Enactment Impact Assessment but
have been updated for this Impact Assessment. We expect the administrative burden of this to
be minimal as these schemes are already required to provide similar information, to that used in
the valuation, to TPR through the ‘Schemes in surplus’ form as part of the Scheme Return.
69. This all results in an estimated total implementation cost (excluding familiarisation) of around
£21.0m17
.
70.
Ongoing costs
71. Most of the work involved in setting the funding and investment strategy and statement of
strategy comes from the one-off implementation cost. However, the regulations outline the
14 Calculation: (8 x 1,991 x £280.55)
15
16 Trustee Landscape Quantitative Research 2015- (see table B9 in page 53)
17
£12.3m + £4.3m + £4.5m

21
funding and investment strategy must be reviewed, and if necessary, revised alongside each
valuation, usually every three years, and after any material change in the circumstances of the
pension scheme or of the employer. Based on the consultation responses received by DWP,
we do not believe schemes will need to spend significant amounts of time to update or review
the products once initially produced.
72. Consequently, we assume all scheme trustees will need to spend 1 day (8 hours)
updating/reviewing both products per year, consisting of 6 hours reviewing the funding and
investment strategy and 2 hours updating the statement of strategy. In addition, we assume
schemes will consult and seek external support when reviewing the financial and investment
strategy from schemes professionals (actuarial team and others), resulting in an additional day
of external fees.
73. Given the funding and investment strategy must be reviewed and updated within 15 months of
submitting the actuarial valuation18
, we assume schemes are evenly distributed between
triennial tranches. Therefore 1,710 schemes per year will need to do this. Applying these
assumptions and figures gives a cost estimate of £5.3m19 per year for the ongoing costs of the
funding and investment strategy and the statement of strategy.
74. In addition, we expect there to be some ongoing costs of schemes in surplus on a SFO basis20
,
submitting the actuarial valuation, as part of the statement of strategy. This comes from
additional time spent by the scheme’s administrator or actuary in adding this information into the
statement. There are currently around 1,400 schemes estimated to be in surplus21
on a SFO
basis. Given triennial valuations being submitted, and we assume schemes in surplus are
evenly distributed between tranches, therefore around 500 schemes in surplus per year will
need to submit their actuarial valuation. Schemes are already expected in the baseline to
undertake a valuation and to upload some of this information in the ‘Scheme in surplus’
component of the scheme return. As such, we assume that the changes to the requirements will
result in an extra hour of work for either a scheme administrator or actuary. This produces a
total per annum cost of approximately £130,00022 for schemes.
75. This leads to an overall ongoing cost of around £5.4m per year to schemes.
Sensitivity Analysis
76. Although our estimates of implementation and ongoing costs are based on the best available
evidence and been tested via the consultation Impact Assessment stage, we recognise there is
still considerable uncertainty, and this will differ scheme-by-scheme. To highlight the sensitivity
of implementation costs, we have adjusted the most uncertain and sensitive input – time
required. This is because it drives the cost (as we use hourly wages and fees) and is uncertain
(will vary across schemes), and subject to change (as the final Code of Practice and Guidance
may be more or less detailed).
77. To illustrate the effect, we adjust the time required on all steps (which have been outlined
above) by:
18
The actuarial valuation is done every year, but only needs to be submitted every 3 years. Schemes are broadly split into 3 tranches so each
year, around one-third of schemes submit their valuations to TPR.
19
Calculation: [1710 x 3.2 x 6 x (25.67 x 1.27)] + [1710 x 6 x £280.55] + [1710 x 3.2 x 2 x (25.67 x 1.27)]
20
See Paragraph 4 for detailed explanation.
21
Tranche Scheme Returns Data https://www.thepensionsregulator.gov.uk/en/document-library/research-and-analysis/scheme-funding-
analysis-2022
22
Calculation: 462 x £280.55

22
o 50% greater time requirements – Upper estimate
o 50% lower time requirements – Lower estimate
78. TPR’s trustee research suggests that schemes were more likely to have only non-professional
trustees (46%) than only professional/corporate ones (27%), and a quarter of schemes (26%)
had both types of trustees23
. This shows there is a wide difference in the range of capability and
knowledge of trustees for schemes between each individual pension schemes, those with non-
professional trustees may require more time to familiarise themselves with the regulations and
vice versa. Similarly, research from the Regulator shows greater awareness of regulations and
changes for very large schemes (schemes with 10,000+ members)24
, who are more likely to
have the resources to already be aware of the proposed regulations and be better able to
process them quickly, whereas smaller schemes may not. Hence a large variance in the upper
and lower estimate is used within the sensitivity analysis to reflect this. Lastly, industry feedback
on the consultation cost estimates were wide ranging. Although many supported the estimates,
there were disagreements on the additional level of administrative burden and familiarisation
required (some thought too low; some thought too high). The use of a wide range of sensitivity
to our time-estimates reflects this wide variation.
79. As Table 1 shows, changes in the time required could mean year 1 implementation and
familiarisation costs range from around £18m to £55m (or around from £4,000 to £11,000 per
scheme). Ongoing costs will range from around £3m to £8m per annum. This is an area we will
monitor closely post-implementation to understand the impacts on schemes.
Table 1: Sensitivity analysis on familiarisation and implementation costs
Changes to Deficit Reduction Contributions
80. The most notable potential change of the regulations is this may lead to changes in funding
targets and recovery plans (plans agreed between sponsoring employers and schemes at
addressing pension deficits) and thus an increase in Deficit Reduction Contributions (DRCs)
paid to repair any funding deficits. These are important payments made by employers to help
ensure the pension scheme is fully funded and will meet its promise to pay pensions in the
future. In many cases it is the timing of the DRCs that has been brought forward rather than
necessarily being brand new costs to an employer as the regulations do not change the real
(underlying) pension liability; but it alters the way the scheme is being serviced. Some
contributions into the scheme are brought forward, but the overall funding requirement (and cost
23
Figure 3.1.2 https://webarchive.nationalarchives.gov.uk/ukgwa/20170712122409/http:/www.thepensionsregulator.gov.uk/docs/trustee-
landscape-quantitative-research-2015.pdf
24
2021.ashx
Cost type Central Estimate Upper Estimate Lower
Estimate
Familiarisation – one-off cost £15.8m £23.7m £7.9m
Implementation of the funding
and investment strategy (FIS) –
one-off cost
£12.3m £18.4m £6.1m
Implementation of the statement
of strategy (SoS) – one-off cost
£8.8m £13.1m £4.4m
Ongoing implementation costs –
annual cost
£5.4m £8.1m £2.7m

23
to employer) over the scheme’s lifetime are not altered.
81. The regulations set the framework for the DB scheme funding code to provide parameters to
help guide schemes which may change the calculation of important assumptions, including:
Discount Rates – As liabilities are a flow of pension payments due in the future, these
need to be discounted to the present day by a discount factor reflecting the assets held
to pay the benefit payments. A higher discount rate may show an improved funding
position, as it leads to lower liabilities, but may not necessarily be representative of a
well-funded scheme.
Maturity Point – It is expected that as schemes mature, less risk will be taken and more
conservative assumptions (discount rates) used. The regulations will determine when
“significant maturity” is reached.
Risk – As schemes mature, there is an expectation investment will move from growth
assets (such as equities) into safer assets (such as government bonds). This will lower
the discount rate (hence higher liabilities), as assets will be expected to provide a lower
future return.
Long Term Objective (LTO) – Helping schemes plan what the long-term objective of the
scheme should be, for example such as reaching buy-out (where an insurer buys the
scheme and the employer is no longer responsible), or alternatively running the scheme
on in a low-risk manner.
82. The current lack of clarity in funding requirements and a clear end goal means some schemes
may be applying more cautious assumptions for the purposes of their valuations, relative to
legislative minimums, leading to higher deficit estimates, higher DRCs, and associated costs.
They may do this in order to reduce risk of volatility on members and sponsors, and as part of a
strategy to buy out on the insurance market in the future. Equally, some schemes may not have
a LTO or be currently targeting artificially low pension scheme liabilities and/or inconsistently
with their LTO leading to lower DRCs than what is needed. This may also apply to investment
strategies, with some schemes taking on more risk (aiming for higher growth but at the cost of
greater volatility) or schemes being more cautious in investment risks (helping reduce volatility
but leading to additional DRC costs from employers).
83. It is important to note the legislation does not specifically stipulate investment strategies or that
each scheme should respond in exactly the same way. Schemes can make tailored and
bespoke decisions in response to the regulations; the framework helps support schemes in
what the expectations are. TPR’s Code is still to be finalised and subject to change, in line with
the amended Regulations, however in the interests of transparency, TPR have best modelled a
pragmatic approach, in that 50% of schemes may take action, in order to estimate the potential
impacts recognising these regulations will lead to some schemes taking action. This will vary
scheme-by-scheme, hence additional sensitivity analysis is included on the level of action taken
and will vary across all schemes and is dependent on the final code.
84. It is also recognised that many schemes may weaken their funding position as a result of the
change. This is expected; clearer funding standards set out much more explicitly what the
required funding levels looks like. The regulations aim to ensure schemes are at, or above, this
level.
85. To model the DB universe over the next 10 years, modelling by TPR has been undertaken. The
key assumptions for the counterfactual are:

24
Data – Data is modelled from the point of 31 March 2021 based on the latest available
information for each individual scheme on assets and liabilities. Adjustments are made
between the latest valuation (which may be pre/post 2021) and 31 March 2021 by
accounting for assets changes in line with market indices (for each asset class) and
allowing for DRC payments which have been promised to be paid over the period.
Projection of liabilities and assets are made for 10 years with further adjustments by the
unwinding of the discount rate over time, assumed net returns, DRCs, and expected
cashflows from pension payments.
Future DRCs – Current levels of DRCs (average of the last three years) are assumed,
with an allowance of up to an extra 20% if this would eliminate the estimated funding
deficit as at 31 March 2021 from the agreed recovery plan. If this is not possible, the
recovery plan length is extended using 20% higher DRCs than currently until the deficit is
expected to be removed. No adjustment for inflation linked increases to DRCs is made.
For the projections, once the modelled DRCs remove the deficit, no further DRCs are
assumed to be made for any future year.
Derisking – Where schemes have less than 15% of their assets in return seeking assets
(e.g., equities), no further derisking is expected. For other schemes, the level of return
seeking assets reduces 5% each duration year until the growth allocation is 20%; then
reduced a further 1% each duration year until the growth allocation is 15%. This is not
applied to schemes which remain “open” (i.e., where members are still accruing benefits).
As mentioned in paragraphs 21-29, we think these assumptions and the modelling provide us
with to provide our best estimate of the potential impacts. Further details of these assumptions
can be found in Annex 1.
86. To model the potential impact of the planned changes, key assumptions used to value the
liabilities are adjusted in relation to “Fast Track” parameters outlined in TPR’s consultation. This
is our best estimate of the potential interpretation and approach schemes may make (but as
mentioned, schemes may choose bespoke options in applying the rules which would impact the
final cost):
Behavioural assumptions – Adjustments to the assumptions above compared to the
counterfactual may lead to an increase/decrease in scheme funding position. This would
require less/more DRCs. We do not have evidence on how schemes may respond to the
rules, therefore in the absence of any evidence we have assumed for our central
approach that in aggregate, where required, 50% of schemes will change their behaviour
and adopt the Fast Track approach and the remaining 50% will retain their existing
approach. As it is impossible to predict which particular schemes would change their
approach and which schemes would maintain their existing approach, we have instead
assumed that all schemes move their liabilities 50% of the way towards Fast Track. This
will result in a change in the starting deficit and to calculate the starting DRCs:
o Any allowance for investment out-performance in the recovery plan is removed
o If DRCs need to increase (as liabilities and thus deficit is greater and there is no
investment outperformance), they are increased up to a maximum of 20%. If this
does not address the shortfall within the current Recovery Plan, then the plan
length is extended (up to a maximum of 16 years, at which point we increase the
DRCs accordingly to remove the deficit using a 16-year Recovery Plan).
Some schemes may “level down” their DRCs as their liabilities are now estimated to be
lower compared to the counterfactual. Equally, some schemes liabilities may now be
higher compared to the counterfactual so are required to “level up”. Under the central
approach, liabilities are assumed to be 50% of Fast Track liabilities and 50% of initial
counterfactual liabilities.

25
Fast Track Liabilities are calculated using a forward discount rate of Bank of England
(BoE) Gilt curve + 2%, de-risking over time to, forward discount rate of BoE Gilt curve +
0.5% at the point of significant maturity.
Fast Track Asset de-risking – Broadly, assets are projected using a similar approach to
the counterfactual with gradual de-risking over time until the growth allocation is 15% at
the point of significant maturity. However, under Fast Track, we adjust the asset
allocations such that the initial level of growth assets are broadly at the maximum limit of
what would be acceptable using Fast Track and that de-risking starts at the point the
scheme reaches a duration of 17 years. The rate at which the scheme de-risks under a
Fast Track approach is higher than that assumed under the counterfactual approach, 9%
per duration year.
87. Recognising this as a broad assumption in the light of limited evidence to derive a more
accurate behavioural response, we show the sensitivity of the central assumption with two
alternative scenarios:
1) “Higher DRCs” - Under the higher DRC approach, we have assumed that, for those
schemes who level up, rather than move 50% of the way to Fast track they move 75% of
the way towards Fast Track. However, for those schemes who are assumed to level
down, we instead assume that they only move 25% of the way towards Fast Track. As
such for both types of schemes, this will result in higher technical provisions compared to
the central behaviour approach and hence higher deficits leading to overall higher DRCs.
2) “Lower DRCs” - The opposite applies for the lower DRC approach in that, the levelling
up schemes only move 25% of the way towards Fast track, whilst levelling down
schemes move 75% of the way towards Fast Track, with the resulting lower technical
provisions compared to the central behaviour approach and hence lower deficits and
overall lower DRCs.
88. Table 2 shows the starting position of the DB universe under the counterfactual and central
positions (along with the sensitivity). As can be seen, the asset positions are the same
reflecting no adjustment is made to asset values at the start. There is a small difference in
liabilities under the Central approach reflecting scheme levelling up are broadly equal to
schemes levelling down – though it is important to note the sensitivity with around +/- £12bn
on higher/lower scenarios.
Table 2: Assets & Liabilities of DB Universe at Year 1
£bns Counterfactual Central Higher Lower
Assets £1,710 £1,710 £1,710 £1,710
Liabilities £1,712 £1,711 £1,723 £1,699
Surplus / (Deficit) (£2) (£1) (£14) £11
Funding Level 100% 100% 99% 101%
89. However, this hides a more significant difference shown in Table 3 when looking at
schemes in surplus (more assets than liabilities) and in deficit (more liabilities than assets).
There are around an extra 100 schemes modelled to be in surplus under this central
approach.

26
Table 3: Aggregate Funding split by schemes in surplus or deficit
£bns Counterfactual Central Higher Lower
Schemes in Surplus
No. of Schemes 2,256 2,365 2,185 2,553
Assets £928 £993 £924 £1,039
Liabilities £860 £927 £860 £969
Surplus / (Deficit) £67 £66 £64 £70
Funding Level 107.8% 107.2% 107.4% 107.2%
Schemes in Deficit
No. of Schemes 2,795 2,686 2,866 2,498
Assets £782 £717 £785 £671
Liabilities £852 £784 £863 £730
Surplus / (Deficit) (£70) (£68) (£78) (£59)
Funding Level 91.8% 91.4% 91.0% 91.9%
90. Table 4 identifies the groups based on a combination of their counterfactual funding
approach and funding level and whether there is an impact from the change in approach:
Around 30% (of liabilities) are in schemes who are already applying more prudent
assumptions than Fast Track and are in surplus – we expect no impact on the changes
on this group
Around 4% (of liabilities but 10% by numbers) are scheme who are currently targeting a
LTO and are in deficit – we expect these schemes will continue to target their LTO
and therefore do not make any changes
The top 25 schemes account for around 30% of liabilities – we do not expect changes
from this group (as discussed previously).
The remaining approximately 35% of liabilities (or around 55% of schemes by number)
are schemes modelled as responding to the changes. This is largely made-up of:
o 1,381 schemes who may “level down” DRCs as they are currently applying more
prudent assumptions
o 1,446 schemes who may “level up” as currently less prudent assumptions (though not
all will require DRC changes).

27
Table 4: Counterfactual split by funding category
No. of schemes % Counterfactual
Liabilities
%
Counterfactual
TPs more
prudent than
Fast Track
and…
…in surplus 1,680 33% £551bn 32%
…in deficit (and
funding basis
equal to LTO)
519 10% £64bn 4%
…in deficit (but
still need to get to
LTO)
1,381 27% £326bn 19%
Counterfactual TPs less prudent
than FT
1,446 29% £223bn 13%
Top 25 schemes 25 0% £549bn 32%
Total 5,051 100% £1,712bn 100%
91. The overall modelling finds aggregate DRCs will be around £0.26bn lower over the 10
year period under the change compared to the counterfactual, as set out in Table 5. A
further breakdown of this table, detailing the total increases and decreases to DRC
payments can be found in Table 12 in Annex 2. This is largely a reflection of the additional
cost to schemes having assumed to “level up” by increasing DRCs is offset by schemes who
may choose to “level down”. When applying the higher and lower assumptions, this could
result in DRCs increasing by around £7bn or decreasing by around £7bn – a significantly
wide margin (though this should also be seen in the context of around £1.7trillion liabilities).
The fluctuation year to year reflects different recovery plan lengths in place. It also highlights
the sensitivity of assumptions.
Table 5: Estimated DRCs over next 10 years (£bns, rounded to nearest £100m)
£bns Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Total
Counterfactual £13.4 £12.2 £8.9 £6.9 £5.9 £4.5 £3.7 £2.7 £2.1 £1.8 £62.1
Central £13.2 £12.1 £8.6 £7.1 £6.0 £4.6 £3.5 £2.8 £2.1 £1.9 £61.9
Higher £14.3 £13.2 £9.7 £8.0 £6.8 £5.5 £4.2 £3.2 £2.4 £2.1 £69.4
Lower £12.1 £11.1 £7.7 £6.1 £5.2 £4.0 £3.2 £2.4 £1.8 £1.6 £55.2
Central Net
increase
-£0.20 -£0.10 -£0.30 £0.20 £0.10 £0.10 -£0.20 £0.10 £0.00 £0.10 -£0.30
Higher Net
increase
£0.90 £1.00 £0.80 £1.10 £0.90 £1.00 £0.50 £0.50 £0.30 £0.30 £7.30
Lower Net
increase
-£1.30 -£1.10 -£1.20 -£0.80 -£0.70 -£0.50 -£0.50 -£0.30 -£0.30 -£0.20 -£6.90
92. Whilst the aggregate picture may be lower DRCs, it is important to note there are some
schemes who will have higher DRCs and some schemes could choose to have lower DRCs.
At an individual level, this does result in some schemes paying significantly more or less:
• Around 1,200 schemes are expected to pay more DRCs – with their payments increasing
around £7.1bn over the 10 years (a 45% increase compared to the counterfactual). At an

28
aggregate level the mean increase in year 1 is around £911,000 per scheme/employer,
the median increase is only around £50,000 showing this is significantly skewed towards
just a few schemes.
• Around 1,400 schemes are expected to pay less DRCs – their payments decreasing
around £7.4bn over the 10 years (a 27% decrease compared to the counterfactual). At
an aggregate level the mean decrease in year 1 is around £885,000 per
scheme/employer, the median decrease is £87,000 showing this is significantly skewed
towards just a few schemes.
Table 6: Number of schemes changing DRCs
No of schemes %
Increase DRCs 1,158 23%
Stay the same 2,512 50%
Decrease DRCs 1,381 27%
Total 5,051 100%
Table 7: DRCs by whether increase/decrease
£bns Counterfactual Central
Year DRCs
increasing
DRCs
staying the
same
DRCs
decreasing
DRCs
increasing
DRCs
staying the
same
DRCs
decreasing
1 £2.3 £5.6 £5.5 £3.3 £5.6 £4.2
2 £2.2 £5.0 £5.0 £3.2 £5.0 £4.0
3 £2.0 £2.5 £4.4 £2.9 £2.5 £3.2
4 £1.7 £1.7 £3.4 £2.7 £1.7 £2.6
5 £1.6 £1.6 £2.8 £2.4 £1.6 £2.1
6 £1.5 £1.1 £2.0 £2.2 £1.1 £1.4
7 £1.3 £0.7 £1.7 £1.8 £0.7 £1.0
8 £1.2 £0.3 £1.3 £1.6 £0.3 £0.9
9 £1.1 £0.1 £0.9 £1.5 £0.1 £0.5
10 £1.0 £0.1 £0.7 £1.4 £0.1 £0.4
93. Under a higher DRC scenario:
Around 1,200 schemes are expected to pay more DRCs – with their payments increasing
around £10.6bn over the 10 years (67% increase)
Around 1,200 schemes are expected to pay less DRCs – with their payments decreasing
around £3.6bn over the 10 years (13% decrease)
94. Under a lower DRC scenario:
Around 1,200 schemes are expected to pay more DRCs – with their payments increasing
around £3.5bn over the 10 years (22% increase)
Around 1,400 schemes are expected to pay less DRCs – with their payments decreasing
around £10.6bn over the 10 years (38% decrease)

29
95. The overall impact will be very dependent on both the level of movement adopted by
schemes and the number of schemes amending approaches following the introduction of the
revised funding regime. Of equal importance to the overall net cost is the number of
schemes who choose to level down as well as those who may choose to level up. It should
also be noted that in many cases it is the timing of the DRCs which has changed (being
brought forward) rather than necessarily a brand-new cost being created for employers.
Whilst, due to discounting, this would still lead to a business cost; it is important context to
consider.
96. As outlined above, there is not complete data which captures the full picture over the course
of 2022 as global interest rates (and Gilt yields) have been rising significantly and with high
degree of expected continued volatility in future interest rates. This would impact the
estimated costs but there are many counteracting points to consider, for example:
Liabilities have fallen – As discussed above, there has been a significant decrease in
DB liabilities given rising Gilt yields which are often used to derive discount rates used in
liability calculations(and which are used for the calculation of Fast Track liabilities).
Where a scheme had hedged their assets to move exactly in proportion to their
movements in liabilities – their net funding position will not have changed. Where this
was not the case, liabilities may have fallen more than assets and therefore improved the
funding position (and thus reduce the need for DRCs). Overall liabilities measured in
relation to gilt yields would, however, in all cases have fallen.
Schemes are more mature – However, as liabilities may have fallen, this means
schemes will have matured faster than previously expected (this is because pension
payments remain unaffected and hence annual pension payments as a percentage of
total assets or liabilities has increased). The implications of this is that less risk should be
taken thus potentially requiring more DRCs as lower asset returns can be achieved due
to lower levels of investment in return-seeking assets in order to meet the LTO.
97. TPR modelling suggests that the improved funding from higher liabilities led to a reduction in
counterfactual DRCs by broadly 50% when compared to the position as at 31 March 2021.
For example, counterfactual DRCs are estimated in year 1 at £6.9bn compared to £13.4bn.
However, the significantly greater maturity leads to a net impact of the new funding regime
of an estimated overall net cost of around £1.5bn on the central basis over 10 years (albeit
the total amount of DRCs in absolute terms is materially lower than the central basis as at 31
March 2021).
98. However, the consultation on the draft regulations highlighted some potential issues with the
maturity methodology and definitions, such as highlighted above, and these are currently
subject to review. As an example, using 31 March 2021 yields in order to calculate maturity
only (i.e., a fixed approach to calculating maturity rather than a market-led approach), the
impact of the improved market conditions leads to an overall net saving of around £1.6bn
over the ten years under the central basis compared to the counterfactual, with significantly
lower levels of total DRCs under both compared to 31 March 2021. Given the limited data on
how the regulations, TPR’s Code, and Fast Track might be amended and continued market
volatility, we include this for sensitivity but use data from 2021 to inform our final costs given
the more accurate picture this presents.
Benefits to Business

30
99. As set out in the Department’s White Paper25, this measure is expected to support trustees
and their sponsoring employers to make the best possible long-term decisions to meet the
pension liabilities of all members of the pension scheme over time. These long-term plans
should help improve governance, reduce the risk of significant unplanned expenditure, and
make it easier to plan for the future, as pension costs should be more stable and predictable.
This will also limit the need and risk of the scheme requiring additional employer
contributions once the scheme has reached significantly maturity.
100. As a result, given DB pension schemes are sponsored by an employer, improved scheme
governance and accountability as a result of the proposed requirements is likely to benefit
the sponsoring businesses through reducing cost pressure on them over the long term.
101. Further, given the changes in market conditions over 2022 and 2023, many employers will
see their DB scheme have lower liabilities and result in a lower level of DRCs being required
compared to existing recovery plans. This should help support businesses through reducing
the likelihood of insolvency if business and pension costs are lowered
102. It is important to recognise that the new regulations introduce the requirement for recovery
plans to be based on reasonable affordability of the sponsor. This will help ensure that the
funding of schemes properly recognise the need to be affordable for employers. For
schemes where DRCs may need to increase, any increase will therefore be limited by a
scheme specific assessment of the employer’s affordability. However, quantifying the benefit
of all of these factors would be disproportionate as isolating those impacts from other factors
would be a very complex and resource intensive exercise.
103. The Regulations make clear that the trustees of most DB schemes are potentially taking
less risk than will be required by legislation (for example around 70-75% of schemes satisfy
TPR’s Fast Track parameters in relation to investment risk and are broadly the same in
relation to technical provisions). Our analysis estimates that the Regulations could provide a
greater incentive for around 1380 schemes to invest more productively, which may help
unlock up to £5bn of further investment in private equity and venture capital.
104. The Regulations make it explicit that open schemes can take account of both new entrants
and future accruals, meaning open schemes have a longer period of time before they begin
to de-risk. This in turn will allow open schemes to thrive and provide a greater opportunity for
these schemes to invest in long-term return-seeking assets, which can reduce the cost of
providing DB benefits and drive growth in the UK economy.
105. The Regulations make it clear that trustees can continue to invest in a wide range of
assets, including growth assets that are productive for the UK economy. They provide
additional flexibility for pension scheme surpluses to be used and managed more effectively
– this will help unlock the potential for DB schemes, as investors of large amounts of capital,
to support UK growth and the transition to net zero.
Costs to Members
Pension Contributions
106. There is unlikely to be a cost to members. The requirement is aimed and designed to
improve scheme risk management, governance, and decisions making, which in turn is
intended to make scheme running more efficient, economically viable, and secure. In most
instances, costs from the regulations cannot be passed onto members as they are promised
a pension amount based on earnings and tenure and is therefore irrespective of scheme
25
https://www.gov.uk/government/publications/dwp-white-paper-protecting-defined-benefit-pension-schemes-a-gad-technical-bulletin

31
costs.
107. The only exception may be in schemes which share costs and are still open for accrual.
These schemes could ask members to pay more to contribute towards the higher costs. In
2022, around 10% of DB schemes were still open (or around 20% of DB members were in
open schemes). Given this is the minority and, on a per scheme basis, the average costs are
estimated to be low, we do not anticipate any material impact on members in aggregate.
Wages
108. Previous analysis conducted by Resolution Foundation26
has explored the role of DB
deficits, DRCs, and wage impacts. This found “a strongly significant negative correlation
between deficit payments and employee pay levels”. Given the Regulations may lead to
changes in DRCs, we have considered the potential impact this may have on wages.
However, we do not anticipate this to be material nor have the evidence to monetise given:
The net change in DRCs is for a lower level of contributions. Therefore, whilst some
schemes/employers may pay in more (and this could impact wage levels), this would
only be for a small number of employers and could be more than offset by employers
who may need to pay less DRCs (and thus pass on greater wage levels).
The research highlights the regression analysis does not identify what firms should
have done when faced with greater costs nor the attitudes/views of employers and
employees to the pay and reward which arises from DRCs.
The study was done during a period of significant DRCs and DB funding deficits.
Schemes are in a much stronger position (as shown by lowering DRC levels, even
under a counterfactual position).
DC Contribution Levels
109. Feedback from the consultation suggested the impact of increased DB funding (via greater
DRCs) may lead to lower levels (or no future increase) of Defined Contribution levels for
other pension savers within that employer. However, there is no evidence of employers
levelling down DC rates and, as our analysis shows, the net change in DRCs is for a lower
level of contributions. However, this may be a risk for selected individuals.
Benefit to Members
110. If the employer stands behind a DB scheme and is able to provide sufficient financial
support, then members will receive their benefits in full. Equally, many DB schemes reach
their “end goal”, for example by moving their assets and liabilities to an insurer to guarantee
benefits (and mean the employer no longer has to back the scheme). The main risk to DB
members (and the PPF) is insolvency of the sponsoring business at any point when the
scheme is underfunded. At the point of insolvency, the position of the scheme is crystallised
in which underfunded schemes (as measured on a buyout basis) will not be able to secure
their members’ benefits in full.
111. Members may potentially lose out if a sponsoring employer goes insolvent depending on
the existing funding levels of the scheme on a buyout basis:
a) If a scheme is fully funded on a buy-out basis, then the DB scheme can be transferred
to an insurance firm (“buy-out”) and members will receive their full pension entitlement.
26
https://www.resolutionfoundation.org/app/uploads/2017/05/The-pay-deficit.pdf) &
https://www.resolutionfoundation.org/app/uploads/2018/05/A-New-Generational-Contract-Full-PDF.pdf

32
b) If a scheme has sufficient resources to buy out benefits better than PPF
compensation levels, then the DB scheme may be transferred to an insurance firm,
though members may receive a lower amount than their full entitlement
c) If a scheme has insufficient resources to buy out at or above PPF compensation
levels, it is likely the scheme will move into the PPF, meaning members will likely receive
less of their promised pension.
112. Helping schemes improve their funding position and reduce employer dependency may
result in a consumer benefit. However, estimating the potential monetary benefit is incredibly
challenging given it cannot be known how schemes will behave and which employers in the
future may go insolvent. As part of the stochastic model developed by GAD, the potential
benefit to members was demonstrated by calculating the liabilities at risk for members. This
is found by calculating the difference in PPF and full buy-out liabilities subject to the level of
assets in the scheme using a simplified modelling approach which looked at Fast Track and
Counterfactual only, and by using historical sponsor insolvency rates of around 1% of
schemes entering the PPF. TPR published this modelling alongside their Draft DB funding
code consultation in December 2022.27
113. As outlined in DRCs section, the overall impact of levelling up of DRCs improves the
funding position of those schemes whilst levelling down is not expected to materially change
funding positions; therefore, the overall funding position is improved. This should translate
into greater security for members. The GAD modelling at the median outcome suggests the
regulations will result in lower cumulative liabilities at risk: £24.6bn cumulative liabilities at
risk in Fast Track compared to £25.8bn under the Counterfactual by the 10 year period. This
assumes all schemes follow the FT approach (note this is a different approach to the TPR
modelling of the DRC estimates above)). At the median level of outcomes this results in a
net £1.2bn lower cumulative liabilities being at risk over the 10 year period – meaning
members are more likely to receive their full pension and increasing member security.
Figure 1: Member Security – Cumulative Liabilities at Risk (GAD modelling)
114. It is important to note the modelling considers the aggregate picture. At an individual level,
the benefit to members for schemes whose funding and risk position is materially improved
following these new regulations will be material.
27
https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/pdf/modelling-the-universe-of-defined-benefit-pension-
schemes.ashx
0
5
10
15
20
25
30
35
1 4 7 10 13 16 19 22 25 28 31 34 37 40
Billions
(£)
Years
Median FT Median CF

33
115. For sensitivity, GAD analysed different scenarios. At the 25th percentile of outcomes after
10 years, the Fast Track cumulative liability at risk is around 14% lower than the
counterfactual outcomes. Over the 40-year period modelled, up to and including the 60th
percentile of outcomes, there is a higher member security in the Fast Track approach. Above
the 60th percentile of outcomes, the Fast Track approach has a higher cumulative liability at
risk and so there is less member security. There is a broader range of outcomes under the
Fast Track approach across the percentiles and this is from the additional risk taken in the
Fast Track investment strategy, where the downside of outcomes could be more significant.
See Figure 2 for 25th, 50th and 75th percentile outcomes.
Figure 2: Member Security – Sensitivity Analysis of Cumulative Liabilities at Risk (GAD
Modelling)
116. For simplification, the GAD modelling assumed all schemes will adopt Fast Track whereas,
as outlined previously, we do not expect this to be the case in practice. The model also
assumes, for simplification, that all schemes are closed to future accrual, which is not
reflective of the current landscape, in which 48% of schemes are open to future accrual
(albeit for many of these, future accrual is relatively minor) of some form28. We cannot adjust
the model to reflect this, nor can we adjust the figures derived to reflect the assumptions
underlying the analysis by TPR for the DRC costs in order to make them comparable.
However, we include to give a sense of scale of the potential benefit to members rather than
to monetise the benefits given the inherent uncertainty.
Benefits to the Pension Protection Fund (PPF)
117. As previously outlined, the regulations should lead to improved funding positions for schemes
and improved member security. As a result, the PPF, a public corporation which protects
schemes where employers become insolvent, should have an improved funding position. This
will be driven both by schemes being better funded, and therefore less likely to need any PPF
support in the event of employer insolvency, or where PPF support is needed, schemes having
an improved funding position compared to the counterfactual.
28
-
5
10
15
20
25
30
35
40
45
50
1 4 7 10 13 16 19 22 25 28 31 34 37 40
Billions
(£)
25% FT 25% CF Median FT Median CF 75% FT 75% CF

34
118. GAD modelling29
over a 40-year period assessed PPF potential losses by looking at the PPF
cumulative shortfall over time and applying an annual insolvency rate across all segments of the
universe. Up to the 79th percentile of outcomes, the PPF security is improved under the Fast
Track approach, with a lower cumulative total of liabilities projected to fall to the PPF. This is
driven by the greater allocation to growth assets in the Fast Track, which is expected to improve
funding for those with the weakest starting funding position, leading to smaller shortfalls for
model points over the projection period. See Figure 3.
Figure 3: Cumulative PPF Insolvency Shortfall between Counterfactual (CF) and Fast
Track (FT) at 25th, 50th, 75th percentiles of outcomes over a 40 year period
Costs to The Pensions Regulator
119. The potential impact on TPR falls into 3 main areas
Collecting new information flowing from the regulations
120. The new requirements will include the submission of additional data items to TPR in the
form of the Statement of Strategy (SoS). These data items will need to be submitted by all
schemes (with exemptions for some smaller schemes). with a funding and investment
strategy (FIS) and will include both quantitative and qualitative information. TPR will need to
adjust their systems to be ready to receive and process this new information. The exact
details of what this information will include are not yet known as the regulations allow some
freedom for TPR to define what is required. TPR are also considering whether they can
reduce other data asks on schemes, for example in the scheme return, in the light of the
new requirements under the SoS. TPR plan to consult on this later in 2023.
121. TPR is also in the process of updating its IT systems including design and development of
a new digital service. This will improve their efficiency and effectiveness, in particular when it
comes to data management. This updating process is part of a wider update to TPR’s
systems, moving away from their existing systems that were not fit for purpose for the longer
29
https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/pdf/modelling-the-universe-of-defined-benefit-pension-
schemes.ashx
-
5
10
15
20
25
0 5 10 15 20 25 30 35 40
Billions
(£)
25% FT 25% CF 50% FT 50% CF 75% FT 75% CF

35
term. This wider update was necessary and underway already irrespective of these
regulations.
122. It would not be possible to easily isolate the additional costs relating to the SoS as part of
this. TPR aims to include the additional requirements within existing plans for systems
updates and expected efficiencies they will bring.
Analysing the new information
123. TPR has in place a process for analysing and risk assessing DB schemes to identify
schemes where further engagement may be needed, alongside wider landscape and risk
analysis. The additional information coming as part of the SoS, along with any other
changes TPR makes to data submission requirements, will enhance TPR’s ability to assess
scheme risks. This will enable them to make better targeted decisions around the nature,
and number, of interventions in relation to scheme funding.
124. The level of the risk assessment and/or additional analysis applied to scheme data is an
ongoing operational and prioritisation decision for TPR and is dependent year on year on
their overall strategic prioritisation of their resources. The regulations themselves do not
necessarily demand TPR carry out more or additional analysis but does provide a platform
for this and we expect that TPR will take the opportunity to improve and enhance its
approach. This includes creating efficiencies and enable a more effective regulatory
approach and decision making as TPR moves to being a more data led regulator.
125. Including the new information as part of this is not expected to be a material cost to TPR
but rather may require some redistribution of resources, with a view to better prioritisation
and more strategic interventions which should both create efficiencies and enhance TPR’s
impact. This will again be supported by the wider enhancements TPR is making to its data
and digital systems to enable more effective and data driven regulation.
Supervision and enforcement
126. The third main element of potential impact on TPR relates to their supervision of DB
schemes and enforcement of the new (and related existing) regulations. We expect that the
additional data and improved risk assessment process will enable TPR to be better targeted
and more efficient in its supervisory approach as well as enhancing its ability to use powers
effectively. We do not expect the new regulations to add any material cost to TPR’s
supervisory and enforcement approach and decisions by TPR to prioritise regulation in this
area will remain an operational and strategic one.
Direct costs and benefits to business calculations
127. We have debated the role of costs being direct or indirect, identifying arguments it should
be either. On one hand, there is some flexibility in how schemes can improve their funding
positions and adjust the level of risk being taken (suggesting indirect). However, there is a
clear need to meet the regulations and show compliance to the scheme funding
regulations, code and TPRs tolerated risk parameters (suggesting direct).
128. On balance, we consider the costs to be direct. This is based on:
• Increased DRCs – Schemes/employers who need to increase their DRCs will need to do
so in order to demonstrate to the regulator they are complying with the regulations and
on-track to reach low dependency with their employer. For trustees of pension schemes,

36
they would wish to improve the funding position as soon as reasonably possible to
support this. Therefore this is a direct cost employers/schemes need to meet.
• Decreased DRCs – Where a scheme would be able to reduce their DRC payments, we
anticipate they would negotiate this with trustees to reduce the costs the employer
currently faces in paying into the DB schemes (and this would be in the employers
interest to address this). Even continuing to pay higher DRCs would bring the scheme
into a stronger funding position sooner (and total payment being lower due to an
improved funding position) benefiting the employer in the long-run. This saves employers
the cost in the future. We therefore consider the cost to be direct as the regulations will
mean an employer would not need to pay as much into the pension scheme to comply.
• Familiarisation/implementation costs – All schemes will need to upskill and ensure
they have the appropriate understanding and knowledge of the new regulations, and
therefore the cost is immediate and unavoidable.
129. We recognise in the modelling that not all schemes will necessarily comply in a uniform
way; we have modelled them against TPR’s “fast track” approach, but schemes are free to
choose a bespoke approach to comply with the regulations. It is impossible to predict which
particular schemes would change their approach and which schemes would maintain their
existing approach, therefore we have instead assumed in the model that all schemes move
50% of the way towards fast track, both positive and negative, meaning that schemes adjust
their technical provisions by half the difference between their counterfactual liabilities and
their fast track liabilities. This assessment is highly subjective as there is clearly uncertainty
around how schemes will adjust their funding in light of the regulations, code and related
guidance as there is no past experience that can be drawn on to make such behavioural
assumptions. How schemes may amend liabilities is very subjective and so we have used
fast track as a reference line, and sensitivity analysis on this is provided. In the absence of
behavioural evidence, fast track is the only available reference point, and hence it is used for
these modelling purposes for how schemes might amend their funding strategies. Ultimately,
any DB scheme will need to ensure their scheme has sufficient funding levels to meet future
pension payments; thereby making this a direct cost.
130. Overall costs include implementation, familiarisation, ongoing, and (higher) DRCs. Total
benefits include the lower DRCs. Using the appropriate discounting rates (3.5%) and BIT
calculator (using base price year of 2019), the final costs/benefits to business are estimated
each year over the next 10 years are presented in Table 8. DRC payment figures are
adjusted to 2023 prices, in order for all costs/benefits to have the same base year. These
are then converted to 2019 prices and discounted in order to give the final costs/benefits
figures for the regulations. A breakdown of the increases/decreases in DRC payment
figures, including the original, and uprated figures used to estimate the final costs and
benefits to business can be found in Annex 2.
Table 8 – Final costs and benefits to Business
Year Year 1 Year 2 Year 3 Year 4 Year
5
Year
6
Year
7
Year
8
Year
9
Year
10
Total
Total Yearly
Discounted Cost
(£m)
1,256 1,095 1,022 1,041 839 682 420 446 362 299 7,463
Total Yearly
Discounted Benefit
(£m)
1,412 1,187 1,321 843 723 624 633 351 364 239 7,695
Net Discounted
Cost/Benefit (£m)
- 156 - 92 - 299 198 117 58 - 213 96 - 3 60 -233

37
Risks and assumptions
131. We have discussed and outlined a number of key risks and assumptions throughout the
Impact Assessment. However, the main areas of risk include:
- Modelling - The model is intended to show an approximate impact from implementing
the new DB Funding Code, at the level of the overall universe. The model compares
current funding standards against the Fast Track approach only, however, schemes
could choose to take a “Bespoke” approach which may allow them to reduce costs
relative to more prudent Fast Track parameters. The impact will be subject to a wide
range of uncertainty. It is intended to provide results at an aggregate level over large
groups of schemes and should not be used to draw conclusions for individual schemes.
Due to the methodology adopted, it is not possible to use the results at an individual
scheme level.
- Behavioural Assumptions – We make the assumption, in the absence of any evidence
available, 50% of schemes will adjust their behaviour. In the absence of predicting which
schemes will/will not change their approach, we assume all schemes have adopted 50%
of the required change from Counterfactual Liabilities to Fast Track liabilities.
- Levelling Down – For schemes, we assume they may “level down” their DRCs. We
recognise this may not necessarily happen (a scheme and employer may continue to pay
in existing levels to accelerate the improvement in funding position). However, in the
absence of evidence on behavioural change but knowing some employers may wish to
lower DRCs to support other business requirements, feels proportionate to include.
Government is keen to support schemes who want more exposure to equities and other
productive assets, where these risks are supportable.
- Data/market volatility – As previously outlined, the model results are based on market
conditions and data as at 31 March 2021. The date of calculation impacts upon the
financial assumptions used to model scheme positions. It can have a material impact on
the absolute values of liabilities, assets and hence deficits and DRCs estimated. If the
modelling was carried out at a different date the results would vary, in particular TPR
calculations as at 31 December 2022 indicate counterfactual DRCs are around 50%
lower than modelled here.
- Solvency of employer (and affordability to employers) – Within the modelling, we do
not make adjustments to the impact on the number of schemes or on the employer of
potential insolvencies or affordability constraints.
- Economic assumptions/returns – Estimates, such as inflation and Gilt yields are based
on long-term assumptions. Growth assets are expected to return around 5% per annum
in excess of Gilt Yields and safer assets return 0.32% per annum in excess of Gilt Yields.
- TPR Code and Fast Track parameters as currently drafted largely remains as is after
consultation. Fast Track is a framework of quantitative parameters set by TPR in respect
of technical provisions, recovery plan length and investment risk. In reality schemes may
choose to follow the “Bespoke” approach instead, which allows flexibility for schemes in
scheme-funding solutions on the basis the approach/actuarial valuation follow the
legislative and code requirements. The regulations only provide the framework for which
the TPR can then provide expectations for all schemes and Fast Track parameters to
follow. If the TPR code and Fast Track assumptions were to subsequently change, this
may change the estimates (but is anticipated to be outlined in the Business Impact
document). As outlined previously, some areas, such as the definition of maturity is still to
be finalised, which would impact the modelling once finalised. The modelling is sensitive
to a wide range of behavioural changes as many schemes may opt for a more “Bespoke”

38
approach which could lead to lower costs relative to the more prudent and conservative
Fast Track approach.
- Valuations - The model assumes all schemes carry out valuations immediately on the
introduction of the new Code. In reality, schemes’ funding approach would not change
until the next scheduled valuation, so changes to DRCs would be phased in over three
years.
- Top 25 schemes by asset size are assumed to have a bespoke arrangement and
therefore do not make changes as a result of the change in overall regulations and code.
It is possible these large schemes will make changes.
Impact on small and micro businesses
132. We have considered the role of small and micro businesses closely within our policy-
making process. Although there are a large number of small DB schemes (there are around
1,800 schemes with less than 100 members)30
, this does not necessarily translate into
employer size (as employers may have run a scheme for a subset of employees). This
makes it challenging to estimate accurately the potential impacts on small employers.
133. PPF data indicates small schemes are well-funded, with those with less than 100 members
having an average aggregate funding ratio of 119% (March 2022 on an s179 basis)31
. This is
a stronger funding position than schemes slightly greater (100 to 1,000 members) where the
funding ratio is 111%. Very large schemes (i.e., those with over 10,000 members), had an
average funding ratio of 115%. We anticipate funding levels have improved further since
March 2022 given the rise in Gilt yields (increasing the discount level applied to liabilities).
Therefore, we do not consider small/micro businesses would be disproportionately impacted
more than other schemes given the strong funding position.
134. However, to minimise the burdens on small businesses, the regulations do have flexibility,
for example there is flexibility in payments of DRCs ensuring that no scheme can ask for
money that is not reasonably affordable for the employer. Any increase in payments from the
employer to the scheme must consider the affordability, appropriate time-period, and
financial situation of the employer. This will help ensure payments fit within costs businesses
can withstand. This is particularly important for smaller employers.
135. Furthermore, a small number of schemes with less than 100 members may be exempt
from the regulations, if they meet the criteria as set out in Regulation 17 of the 2005 Scheme
Funding Regulations. The number of schemes in this category are not available.
136. Nevertheless, it is important to note that DB payments are a promise the employer made to
their employees (and did not need to offer). Therefore, any increase in funding required to
meet those promises by the employer improves the security for those members and is
designed in avoiding members being worse off via moving to PPF where they will not receive
their full entitlement.
137. In addition, one of the potential benefits to smaller employers from all schemes improving
their funding position may be a reduced value of claims on the PPF. This would reduce
the levy required from other schemes to support the PPF in their reserves (reducing scheme
costs and improving their funding position).
30
Purple Book 2022, figure 4.4 - https://www.ppf.co.uk/-/media/PPF-Website/Public/Years/2022-11/PPF_PurpleBook_2022.pdf
31
Purple Book, Figure 4.4 - https://www.ppf.co.uk/-/media/PPF-Website/Public/Years/2022-11/PPF_PurpleBook_2022.pdf

39
138. All DB schemes are in scope of the regulations, including those backed by small and micro
businesses. This is to ensure all members can benefit from greater likelihood of receiving
their pension entitlement. However, DB schemes are generally run by larger employers now
(as they can be costly to run). Our analysis of ASHE (Table 9) shows around 10% of
members saving into a DB scheme work in a small/micro business; active savers are much
more likely to be in very large employers.
Table 9: Proportion of active DB members, by employer size32
Size of
Employers
Proportion of DB members33
0 0%
1-9 2%
10-49 10%
50-99 4%
100-499 14%
500-999 9%
1000+ 61%
All sizes 100%
139. Whilst recognising ASHE does not account for closed schemes, historical analysis has shown
this to be a similar trend over recent years, and the Purple Book estimates around 600
independent small employers and 400 “group” small employers34
currently have DB schemes.
The funding levels of smaller schemes appears similar, if not slightly greater than, the average.
140. However, we recognise small/micro schemes may be less likely to be already following a
number of the proposed standards. Therefore, they may be more likely to incur costs because
of the proposed changes – see Figure 4 showing a lower proportion of smaller schemes
reporting a journey plan for their scheme. As the sponsoring employer will be responsible for
additional costs that need to be met, this may increase costs to smaller businesses.
Figure 4: Proportion of trustees that reported having an aim for journey plan, by scheme
size35.
32
Source: DWP estimates derived from ONS Annual Survey of Hours and Earnings (GB)
33
Figures are rounded to the nearest 1%.
34
35
Defined benefit trust-based pension schemes research summary report- page 24. http://www.thepensionsregulator.gov.uk/docs/db-research-
summary-report-2017.PDF
https://webarchive.nationalarchives.gov.uk/ukgwa/20191028123143mp_/https:/www.thepensionsregulator.gov.uk/-
/media/thepensionsregulator/files/import/pdf/db-research-summary-report-2018.ashx
Small: 12-99 Members, Mid-sized: 100-999 Members and Large: 1000+ Members

40
141. As DB schemes will be employers themselves, and to be consistent with the Pensions
Dashboard Impact Assessment 202236
, we defined Small and Micro businesses as DB schemes
having fewer than 1,000 members. This is around 80% of DB schemes.
142. For familiarisation, implementation and ongoing costs, we apply the same assumptions as for
all schemes with a few exceptions:
Total number of schemes in scope are 4,084 schemes (compared to 5,131 in total)
86% of schemes have a LTO (compared with 90% used for all schemes) as evidence
points towards fewer smaller/micro schemes having one in place
34% of schemes which do have a LTO have it as aspirational and therefore would need
to develop further (this is higher than all schemes where we assumed 32%).
143. Although there may be further differences between the average scheme and small/Micro
schemes, we also recognise some smaller schemes may have tighter budgetary constraints and
therefore invest less in professional services. However, we do not have the evidence to make
further adjustments. As a result, our overall estimate of implementation and ongoing costs are
presented in the table below.
Table 10: Small & Micro Business Costs – Familiarisation, Implementation, and Ongoing
Costs Amount
Familiarisation £12.6m
Implementation FIS LTO £10.9m
SOS JP £4.0m
SOS £3.4m
Ongoing (Annual) SOS + FIS £4.2m
Actuarial Valuation £0.1m
Total Familiarisation £12.6m
Implementation £18.3m
Ongoing £4.3m
Total £35.2m
144. There may also be changes to DRCs which may be required, though any estimate is
inherently more uncertain. The same modelling approach has been used as for the overall
impacts, though “small” scheme has been defined here as having less than £100m in liabilities.
36
Pensions Dashboards Impact Assessment https://www.legislation.gov.uk/ukia/2022/81/pdfs/ukia_20220081_en.pdf
65%
81%
83%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Small
Medium
Large
Size
of
Scheme

41
Although not exactly consistent with a membership approach, the average membership for
these schemes was 176 (whereas the next category, with £100m to £1bn liabilities, had an
average membership of 1,125).
145. The modelling, shown in Table 11, highlights that for most years, small schemes may need to
increase their DRCs relative to the counterfactual position. This amounts to a total cost of
around £313m over the ten years (not discounted). It is important to note that this may vary
across schemes and not necessarily all smaller schemes will be supported by a small/micro
business – but is our best estimate.
Table 11: Estimated DRCs for Small Schemes under Counterfactual and Behavioural
Approach
£millions Counterfactual Total
DRCs
Behavioural Assessment
Total DRCs
Difference
Year Small Schemes Small Schemes Small Schemes
1 £1,073 £1,128 £55
2 £1,010 £1,058 £48
3 £871 £907 £36
4 £705 £758 £53
5 £580 £651 £71
6 £493 £528 £35
7 £410 £423 £13
8 £347 £352 £5
9 £288 £286 -£2
10 £235 £234 -£1
Total £6,012 £6,325 £313
Wider impacts
146. DB schemes, given their large size (£1.7 trillion assets) are incredibly important to the UK
economy. Schemes invest in long-term infrastructure projects within the UK, they buy
government bonds (helping finance government deficits) and will provide an income to
around 10m people in retirement. Therefore, any changes on scheme funding may be
expected to have impacts beyond schemes themselves. We have considered a number of
potential impacts:
Impact of demand for Government Bonds – Taking a lower risk strategy may lead to
more UK government bonds (or Gilts) being in demand, helping to create the demand to
meet future supply. However, some schemes may consider themselves too conservative
and therefore move towards more growth assets (thus lowering demand). Any large
change in asset allocations may impact the future price and demand of Gilts. However,

42
given the long term trends towards holding bonds from DB schemes, we do not consider
a significant change in demand over the next 10 years.
Risk of herding: DB schemes, as at March 202237
, hold around £1.7 trillion in assets. As
noted by TPR in their consultation , one possible area to consider from the regulations
may be investment herding (schemes investing in similar assets over similar timeframes).
This may be particularly the case around corporate bonds and Gilts, where movements
at a similar time could impact prices and financial stability. This potential impact was
demonstrated in September/October 2022 where DB schemes faced similar challenges
as a result of rising Gilt yields. In practice however, this seems unlikely as:
o Much of the directional move to bonds is likely to have already occurred, given the
long-term trends towards holding bonds: currently on aggregate schemes invest
72% of assets in bonds.
o Pension schemes will have different investment strategies, maturity levels, and
end goals which will impact their risk tolerance and movement. Schemes would
need to consider this and their own liabilities as part of their journey plan when
making investment decisions.
o The regulations still allow for significant flexibility around the investment strategies
trustees can consider as part of their funding and investment strategy, therefore
not all schemes will be driven to increase their allocations in bonds. Some
schemes may choose to adjust their plans and therefore increase their levels of
bonds/hedging to meet the new requirements; almost 75% of schemes are shown
to be applying more prudent assumptions than the Regulator’s Fast Track
conditions and therefore TPR would tolerate an increase in their allocations
towards return-seeking assets. Nevertheless, it is unlikely to be over the same
time frame as each scheme will face a different set of circumstances.
o Therefore, we do not expect that the regulations themselves would increase the
overall aggregate investment allocations to bonds at the same time, so the risk of
herding is not increased as a result of the proposed regulations.
Systemic Risk: DB schemes hold £1.7 trillion in assets, making them an important
financial market. Regulations that impact how DB schemes invest can have wide ranging
implications for schemes. This could lead to impacts beyond individual schemes and
across the wider financial market.
o While the regulations do encourage schemes to invest in a low dependency way
by the time the scheme liabilities are significantly mature, not all schemes will
reach this point at the same time and the duration of schemes will vary.
o There may be an overlap between both mature and immature schemes investing
in low dependency assets, however schemes already invest in similar assets and
there is sufficient flexibility in the regulations to allow schemes to invest in different
ways reflecting their covenants and level of maturity. When schemes have passed
significant maturity, and have low dependency on their employers, schemes can
continue to adopt different strategies and invest a proportion of their assets for
growth or in other non-bond assets which broadly match cash flows
o Events in 2022 have highlighted the potential systemic risks from the use of
leveraged LDI. As schemes mature, the level of leverage is expected to reduce,
with little or no leverage needed at significant maturity depending on the schemes
chosen strategy. The level of leverage assumed throughout Fast Track is broadly
consistent with current market norms.
37
Defined benefit funding code consultation document | The Pensions Regulator

43
o Actuarial consultancies have also projected an increase in schemes looking to
buy-out. The buyout of scheme liabilities could reduce the demand for gilts as
schemes looking to buy-out may transition their assets into a more buy-out friendly
portfolio.
o As the amount of liabilities paid out increases in the future as more members
retire, with schemes getting smaller, the financial risks of defined benefit schemes
should reduce (all else being equal). Improved governance and operational
processes, lower leverage in matching assets, and higher levels of liquid collateral
will mean that schemes are much more resilient to significant increases in gilt
yields. We are encouraging schemes to ensure these elements are in place38
. This
is an area we will continue to monitor closely and will be a key aspect of
evaluation in the post-implementation review of the regulations.
Lower investment from firms – There is a risk that sponsoring employers may have to
pay greater DRCs at the expense of other investments or expenditure within the firm
(e.g., investment in new technologies which may impact productivity). This is a particular
risk for employers who have to increase their DRCs over the next 10 years. However, we
consider the wider impact on employers to be low given:
o The Regulations and code explicitly ask schemes to consider the affordability of
any extra contributions to sponsoring employers (and over the appropriate
timeframe)
o More schemes are expected to “level down” DRCs than “level up” – this could
mean some employers have more money available for investment.
o Sponsoring employers are responsible for the funding of the pension scheme,
therefore the scheme being well funded is an important requirement of the
employer and should be built into existing financial plans. Further, as DB deficits
may be on an employer’s balance sheet, improving this position will help the
financial performance and credit rating of the employer in the medium to long
term.
147. There is no clear evidence base in which to make a quantitative assessment of these
impacts, therefore they are not included in our estimates. However, we will monitor the
impacts closely (see M&E section).
A summary of the potential trade implications of measure
148. DB pension schemes are large and important investors with around £1.7trillion of assets
(as at March 2022)39
held in private sector DB schemes, playing an important role in
investment in the country. However, many schemes are maturing and over 70% of assets
are held in bonds as the trend from equities to bonds has continued over the last 15 years
as schemes mature and de-risk. Although “fast track” tolerates higher levels of investment
risk than a large proportion of schemes currently observe, we do not expect a large asset
allocation change as a result of the Regulations. Consequently, we would not envisage the
Regulations having an impact on investment levels on foreign direct investment.
Monitoring and Evaluation
149. Given the significant changes the regulations may result in for some schemes, we
recognise the importance of a strong monitoring and evaluation plan. Extensive consultation
has already taken place across the industry to support the development of the regulations
and TPR’s proposed code. This dialogue with industry will continue to help ensure we
38
https://www.thepensionsregulator.gov.uk/en/document-library/consultations/draft-defined-benefit-funding-code-of-practice-and-regulatory-
approach-consultation/draft-db-funding-code-consultation-document#443b813ceb274f5980cfcf585a209b0c
39
Purple Book, 2022.

44
understand the impact the regulations are having on schemes.
150. The Secretary of State is required to carry out a review of regulations 4 to 19 and publish a
report setting out the extent to which the objectives have been achieved, and whether they
remain appropriate, in accordance with sections 28 to 32 of the Small Business, Enterprise
and Employment Act 2015 (c.26). The first of these reports must be published within 5 years
of the Regulations coming into force and subsequent reports must be published every 5
years.
151. TPR already assess the DB landscape each year40
where we will learn more about the
reforms and we’ll look to consider the impacts through:
Monitoring the Purple Book and 7800 Index to assess the funding position of schemes
Work with ONS on their Financial Survey of Pension Schemes to monitor the changing
position of funded DB schemes in DRCs being paid, changes in assets, and asset
allocations.
Use TPR scheme funding analysis to assess the behaviour and funding position of
schemes
Work with PPF to understand the numbers of schemes who are seeking PPF support
and the level of the PPF levy.
152. We will further consider evaluation plans, subject to further development and funding, for
example:
Survey of employers with DB schemes to understand the impacts of the proposals on
their business
Survey of DB schemes to understand the cost of implementing and maintaining
compliance to the Regulations and Code.
40
Pensions research and analysis | The Pensions Regulator https://www.thepensionsregulator.gov.uk/en/document-library/research-and-
analysis#9c6a5e675a844225bb53c53ed3b5c7b3

45
Annex 1 – TPR and GAD Modelling Assumptions
TPR Modelling Assumptions
Counterfactual (CF) Behavioural Assumptions
(central)
Projection to
calculation
date (Day 1)
Adjusted by rolling forward or backward
from latest valuation adjusted for changes
in financial markets
Adjusted by rolling forward or
backward from latest valuation
adjusted for changes in financial
markets
Liabilities
basis at
calculation
date (Day 1)
Maintain existing financial assumptions
relative to gilt yields whilst assuming
demographic assumptions have not
changed since the previous triennial
valuation submitted to TPR.
Largest 25 Schemes
• For the largest 25 schemes,
as measured by size of
assets, we assume that they
will follow a Bespoke
approach in their
implementation.
• For these purposes we
assume that the liabilities are
consistent with the CF
liabilities.
For all other schemes the liabilities
are calculated in line with the
following rules:
CF liabilities more prudent than
Fast Track (CF > FT)
• If in surplus on
Counterfactual, use CF
liabilities
• If Counterfactual liabilities >
Long Term Objective
(calculated using Gilts +0.5%
pa) – use CF liabilities
• Otherwise, set liabilities equal
to 50% of CF liabilities and
50% of FT liabilities (‘level
down’)
CF liabilities less prudent than
Fast Track (CF < FT)
• If in surplus on Fast Track
basis, use FT liabilities
• If in deficit on Fast Track
basis, set liabilities equal to
50% of CF liabilities and 50%
of FT liabilities (‘level up’)
Day 1 DRCs
to clear
deficit
Deficit is reduced to allow for
investment outperformance
consistent with outperformance
Deficit to clear is simply A – L
at Day 1 with no reduction to
allow for investment
outperformance.

46
allowed for from previous
valuation, assuming a maximum
deficit reduction of 20%
DRCs then calculated based on
Counterfactual DRC calculation
rules 1
Other rules in line with
Behavioural assumptions
DRC calculation rules 2
For the largest 25 schemes
Behavioural DRC approach
follows the CF approach
Projection
post
Calculation
date
Open schemes
For schemes that are open to new
entrants or accrual where active liabilities
are estimated to be more than 10% of
total liabilities.
Assume remain in stable position with no
change in duration over the next 10 years,
and hence no allowance for de-risking.
(Assumes scheme remains open to
accrual for next 10 years)
Liabilities projected with adjustment for:
• Unwinding of discount rate (move
along the curve)
• Benefit payments, assuming they
are paid halfway through the year
• Future accrual, assuming it occurs
halfway through the year
(Assumed to be in line with benefit
outgo in year 1 and then increased
at 3% p.a. for all future years)
Assets projected with adjustment for:
• Investment return applied based on
asset strategy and asset returns
per asset class
Largest 25 Schemes
o For the largest 25 schemes,
as measured by size of
assets, we assume that they
will follow a Bespoke
approach in their
implementation.
o For these purposes we
assume that the liability and
asset projections are
consistent with the CF liability
and asset projections.
For all other schemes the
projections are calculated in line
with the following rules:
Open schemes
For schemes that are open to new
entrants or accrual where active
liabilities are estimated to be more
than 10% of total liabilities.
Adjusted in line with above for day 0
then follow the rules for
Counterfactual for open schemes
Assume remain in stable position
with no change in duration over the
next 10 years, and hence no
allowance for de-risking.
Liabilities projected with adjustment
for:
• Unwinding of discount rate
o Benefit payments, assuming
they are paid halfway through
the year
o Future accrual, assuming it
occurs halfway through the
year (assumed to be in line
with benefit outgo in year 1
and then increased at 3%
p.a. for all future years)

47
• Future accrual, assuming
contributions match the value of
the benefits accrued, and that they
• Deficit Repair Contributions,
assuming paid halfway through the
year
• No change in asset strategy
Closed schemes
Liabilities
Projected in line with the following :
• Unwinding of discount rate (move
along the curve)
• Adjusting the discount rate as the
scheme matures by reducing the
forward yield by 0.15% per
duration year until forward yield is
equal to G+0.35% 3
Assets projected with adjustment
for:
o Investment return applied
based on asset strategy and
asset returns per asset class
o Benefit payments, assuming
they are paid halfway through
the year
o Future accrual, assuming
contributions match the value
of the benefits accrued, and
that they are paid halfway
through the year
o Deficit Repair Contributions,
assuming paid halfway
through the year
o No change in asset strategy
Closed schemes
Liabilities
Projected with the following rules:
CF TPs more prudent than Fast
Track (CF > FT)
o If in surplus on
Counterfactual, use CF
liabilities at each projection
period
o If Counterfactual > Long
Term Objective (calculated
using Gilts +0.5% pa) - use
CF liabilities at each
projection period
o Otherwise, liabilities at each
projection period are equal to
50% CF liabilities and 50% of
FT liabilities (‘level down’)
CF TPs less prudent than Fast
Track (CF < FT)
o If in surplus on Fast Track
basis, use Fast Track
liabilities at each projection
period
o If in deficit on Fast Track
basis, set liabilities at each
projection period equal to
50% CF liabilities and 50% of
FT liabilities (‘level up’)

48
Assets
Projected in line with the following :
• Investment return applied based on
asset strategy at the start of the
year and asset returns per asset
class
• Deficit Repair contributions,
assuming they are paid halfway
through the year
• Adjusting the asset strategy to
allow for de-risking as the scheme
matures using the following rules:
o For schemes with less than
15% of their assets in return
seeking assets no further
de-risking
o For all other schemes,
reduce the level of return
seeking assets by 5% for
each duration year until the
growth allocation is 20%
and then reduce this by a
further 1% for each duration
year until the growth
allocation is 15%
Assets
Projected in line with the following
rules :
o If CF asset allocation to
growth is less than FT asset
allocation to growth at time 0
use CF assets at each
projection period
o If CF asset allocation to
growth is higher than FT
asset allocation to growth at
time 0 use 50% CF assets
and 50% FT assets at each
projection period
Fast Track Under our Fast Track projections, starting
from the Day 1 Fast Track liabilities and
asset allocation, apply the above rules as
per counterfactual but with the above
amendments
• the forward yield reduces by 0.3%
per duration year but only between
durations 17 to duration 12 at
which point it is equivalent to
G+0.5%
• the level of growth assets reduces
by 9% per duration year but only
between durations 17 to duration
12 at which point growth allocation
is 15%
1. Counterfactual DRCs
i. Calculate the deficit to clear as described above.

49
ii. Take the RP length from the last valuation and calculate resulting DRCs to recover the
reduced deficit within this time period. (If there was a surplus at the previous valuation
then assume a 6-year initial RP length).
iii. Adjust DRCs if necessary to ensure that they
a. Do not reduce below the Current DRC amount
b. Do not increase by more than 20% from the Current DRCs
Recalculate the RP length as necessary, subject to a minimum length of 1 year.
iv. Cap the Recovery Plan at 16 years (which is the 95th percentile of latest valuation RP
lengths from schemes in deficit at 31 March 2021).
If the RP was longer than this limit, then increase DRCs accordingly.
v. Apply an overall affordability cap of 5% of LTO liabilities (which is approximately the 95th
percentile of current DRCs vs estimated LTO liabilities at 31 March 2021).
If DRCs are above this level, then increase the RP length accordingly. The schemes with
modelled RP lengths over 16 years are due to being caught by this cap.
This gives the final Counterfactual DRCs and Recovery Plan length.
2. Behavioural Assumptions DRCs
i. Calculate the deficit to clear as described above.
ii. Take the RP length from the last valuation, capped at the Fast Track RP length, and
calculate resulting DRCs. (If there was a surplus at the previous valuation then assume
the Fast Track RP length).
iii. Adjust DRCs if necessary to ensure that they
a. Do not reduce below the current DRC amount
b. Do not increase by more than 25% from the Current DRCs
Recalculate the RP length as necessary, subject to a minimum length of 1 year.
iv. Cap the Recovery Plan at 16 years.
If the RP was longer than this limit, then increase DRCs accordingly.
v. Apply an overall affordability cap of 5% of LTO liabilities.
If DRCs are above this level, then increase the RP length accordingly.
This gives the final Impact Assessment DRCs and Recovery Plan length.
3. Forward yields
Forward rates are estimate at time 0 by using the following rule of thumb:
i. calculating the single equivalent level of out-performance above gilts with-in the SEDR
ii. The year 1 forward yield is 2x premium above gilts for closed schemes: and
iii. 1.25x premium above gilts for open schemes.
4. Asset calculations
Day 1 growth asset proportion is calculated with reference to the asset breakdown provided in
the 31 March 2022 Scheme Return. It is assumed that assets recorded as Corporate Bonds are
25% growth and that the following are 100% Growth:
o UK Equities
o Overseas Equities

50
o Private Equities
o Property
o Commodities
o Insurance Funds
o Hedge Funds
o Other
The remaining assets are assumed to be broadly matching/protection assets.
The best-estimate return on the assets are assumed to be in line with the following:
o Growth assets 5% per annum in excess of gilt yields.
o Protection assets grow 0.32% per annum in excess of gilt yields (allowing for the fact that
a proportion of them, such as corporate bonds are expected to produce returns slightly in
excess of the gilt yield).
GAD Modelling
The GAD modelling, published in January 2023, was used to help understand the (non-
monetised) benefits to PPF and pension savers. The report, including the key assumptions
used in their modelling, are available here (particularly Appendix C):
https://www.thepensionsregulator.gov.uk/-
/media/thepensionsregulator/files/import/pdf/modelling-the-universe-of-defined-benefit-pension-
schemes.ashx

51
Annex 2: DRC Figures used for the EANDCB
Changes to scheme DRC Payment Figures used in the EANDCB
Table 12 below presents the figures for the aggregate increases and decreases in DRC
payments in 2021 prices, over the 10 year period, taken from the TPR modelling for the purpose
of the EANDCB.
Table 12: Changes in DRC payments (2021 prices)
Year 2021 Prices Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Central
Estimate
Increased
DRC's
1,055.2 m 976.4 m 943.1 m 994.5 m 828.9 m 696.4 m
Decreased
DRC's
1,222.1 m 1,063.7 m 1,224.8 m 808.7 m 717.8 m 641.3 m
Higher
Estimate
Increased
DRC's
1,451.0 m 1,376.5 m 1,300.5 m 1,299.5 m 1,209.3 m 1,031.7 m
Decreased
DRC's
550.8 m 450.2 m 539.9 m 220.0 m 379.9 m 68.9 m
Lower
Estimate
Increased
DRC's
563.2 m 528.5 m 409.9 m 422.4 m 361.9 m 307.4 m
Decreased
DRC's
1,837.0 m 1,678.7 m 1,656.3 m 1,251.3 m 1,135.3 m 836.2 m
Year 2021 Prices Year 7 Year 8 Year 9 Year 10 Total
Central
Estimate
Increased
DRC’s
442.7 m 487.1 m 407.7 m 348.1 m 7,180.0 m
Decreased
DRC’s
674.1 m 386.3 m 415.2 m 282.0 m 7,435.9 m
Higher
Estimate
Increased
DRC’s
920.3 m 881.8 m 621.8 m 521.6 m 10,614.0
m
Decreased
DRC’s
431.4 m 381.9 m 340.3 m 240.6 m 3,604.0 m
Lower
Estimate
Increased
DRC’s
272.7 m 282.3 m 184.0 m 179.9 m 3,512.3 m
Decreased
DRC’s
738.0 m 568.6 m 485.8 m 376.7 m 10,564.2
m

52
Table 13 below, uses the figures from the above Table 12. These prices are adjusted by 15.5%
in order to uprate by inflation, to give the figures in 2023 prices. These figures are used for the
EANDCB calculation, and feed into Table 8.
Table 13: Changes in DRC payments, adjusted for inflation (2023 prices)
2023 Prices Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Central
Estimate
Increased
DRC's 1218.8 m 1127.8 m 1089.2 m 1148.7 m 957.4 m 804.4 m
Decreased
DRC's 1411.5 m 1228.5 m 1414.7 m 934.1 m 829.1 m 740.7 m
Higher
Estimate
Increased
DRC's 1675.9 m 1589.8 m 1502.1 m 1501.0 m 1396.8 m 1191.6 m
Decreased
DRC's 636.2 m 520.0 m 623.6 m 254.1 m 438.8 m 79.5 m
Lower
Estimate
Increased
DRC's 650.6 m 610.5 m 473.5 m 487.9 m 418.0 m 355.1 m
Decreased
DRC's 2121.8 m 1939.0 m 1913.1 m 1445.3 m 1311.3 m 965.8 m
2023 Prices Year Year 7 Year 8 Year 9 Year 10 Total
Central
Estimate
Increased
DRC's 511.3 m 562.6 m 470.9 m 402.1 m 8293.1 m
Decreased
DRC's 778.6 m 446.2 m 479.6 m 325.7 m 8588.6 m
Higher
Estimate
Increased
DRC's 1063.0 m 1018.5 m 718.2 m 602.5 m 12259.3 m
Decreased
DRC's 498.3 m 441.1 m 393.1 m 277.9 m 4162.7 m
Lower
Estimate
Increased
DRC's 315.0 m 326.1 m 212.5 m 207.7 m 4056.8 m
Decreased
DRC's 852.5 m 656.8 m 561.2 m 435.1 m 12201.8 m

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