THIS BEGINNERS’ GUIDE APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES This Beginner’s Guide looks at the legal framework in relation to the funding of registered defined benefit occupational pension schemes (DB schemes), including: • the statutory scheme-specific funding regime and how it works • the funding and investment strategy • actuarial valuations • scheme funding negotiations • the Pensions Regulator’s approach to scheme funding, and • methods of managing scheme funding deficits The statutory scheme-specific funding regime The Pensions Act 2004 (PeA 2004) introduced the current ‘scheme-specific’ funding regime which applies to DB schemes. The regime came into effect on 30 December 2005, replacing the earlier Minimum Funding Requirement (MFR) and implementing the scheme funding requirements of the IORP Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision into UK law (which was later repealed and recast as the Archived Directive (EU) 2016/2341 (Archived IORP II)). Note that neither the 2003 IORP Directive, nor Archived IORP II form part of UK domestic law, but the UK laws implementing

Pensions analysis: The Pensions Ombudsman has rejected a complaint about a pension transfer value. Martin Scott of gunnercooke LLP looks at the decision.

While pension scheme incentive exercises allow employers to manage and minimise liabilities under defined benefit (DB) schemes, such exercises present potential dangers to the interests of scheme beneficiaries. The Pensions Regulator and scheme trustees have challenged their propriety. Regulatory framework A code of good practice on incentive exercises (the Code) has been developed by the pensions community’s Industry Working Group. The Code (which was first published in June 2012) is voluntary, but suggests that if advisers have concerns about running an incentive exercise, those concerns should be reported to the Pensions Regulator. The Code was updated in February 2016 (with the revised code applying to incentive exercise offers made to members after that date). A set of boundary examples was published alongside the revised Code. In November 2019, responsibility for the Code was effectively handed over to the Pensions Regulator, although it is not clear that the Pensions Regulator will keep it up-to-date. For further information, see: Status of the Code below. In July 2012, the Pensions Regulator issued a statement on incentive exercises

THIS BEGINNER’S GUIDE APPLIES TO DEFINED BENEFIT (DB) AND DEFINED CONTRIBUTION (DC) OCCUPATIONAL PENSION SCHEMES This beginner’s guide looks at the legal framework in relation to the investment strategy of registered defined benefit (DB) and defined contribution (DC) occupational pension schemes, including: • core investment duties • suitability and restrictions on investments • diversification: equities and bonds • balancing risk and return (asset allocation) • impact of market conditions • additional asset classes • investment risk • obtaining and considering proper advice before making investments • Statement of Investment Principles (SIP) • DC-specific regulations For clarity, the legal framework applicable to the Local Government Pension Scheme (LGPS) is outside the scope of this guide. Core investment duties In DB schemes, the employer promises a defined level of pension, and investment risk is primarily borne by the employer. In DC schemes, the member’s benefits depend on the performance of their investment pot, and investment risk is borne by the member. Trustees are responsible for setting the investment

Planning of merger • Reach “in principle” agreement between trustees and employers of both transferring and receiving schemes on pursuing merger exercise. • Review governing provisions of both transferring and receiving schemes to confirm transfer of assets, liabilities and members can be made. Amend provisions if necessary and possible. • Check whether schemes’ benefit structures are compatible. • Check whether contracted-out status of either scheme poses a problem. • Review respective funding positions of schemes and obtain actuarial advice. Check whether employer top-up payment required. • Agree how

THIS PRACTICE NOTE ONLY APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES For employers who operate more than one defined benefit occupational pension scheme within the same group of employers, the merging of their schemes to produce a single larger pension scheme offers a number of potential advantages, including: • administrative cost and time savings by removing duplication • potentially greater investment opportunities due to the creation of a single larger pension fund • simpler communication procedures between employers, trustees and members • harmonisation of benefit structures, and • depending on the scheme rules, the use of a funding surplus in one scheme to fund a deficit in the other scheme Mergers can, however, also present legal and technical difficulties. Nature of merger A merger generally involves the bulk transfer of assets, liabilities and members from one or more transferring schemes to a receiving scheme. Where a merger exercise is combined with a partial buy-out exercise, in which the pension rights of a particular class of members are bought out with an

Law360: The number of profit warnings issued by UK-listed companies with defined benefit pension schemes fell to 18 in the first quarter of this year, compared to 22 in the last three months of 2023, according to research published on 16 May 2024 by EY-Parthenon.

THIS PRACTICE NOTE RELATES TO REGISTERED OCCUPATIONAL PENSION SCHEMES The general obligation upon trustees of registered occupational pension schemes to maintain adequate scheme records derives from a variety of sources, including: • general trust law and fiduciary principles, such as those requiring trustees to act in the best interests of their beneficiaries, a duty which in practice requires adequate record keeping • obligations arising under pensions legislation, in particular: ◦ the Pensions Act 1995 (PA 1995), ss 49(2) and 49A ◦ the Occupational Pension Schemes (Scheme Administration) Regulations 1996, SI 1996/1715, regs 12–13 ◦ the Registered Pension Schemes (Provision of Information) Regulations 2006, SI 2006/567, reg 18 ◦ the Occupational Pension Schemes (Winding-up Notices and Reports etc) Regulations 2002, SI 2002/459, reg 13 ◦ the Occupational Pension Schemes (Winding Up) Regulations 1996, SI 1996/3126, reg 11(1) ◦ the Occupational Pension Schemes (Scheme Funding) Regulations 2005, SI 2005/3377, reg 11 ◦ the Employer’s Duties (Registration and Compliance) Regulations 2010, SI 2010/5, regs 5–8 ◦ the Occupational and Personal Pension

THIS PRACTICE NOTE APPLIES TO REGISTERED OCCUPATIONAL PENSION SCHEMES Trustee reporting obligations have increased significantly over the years, principally as a consequence of the creation of the registered pension scheme framework and the introduction of the Pensions Regulator (TPR), which relies, at least in part, on the prompt and accurate reporting of scheme affairs by trustees to fulfil its statutory objectives. The following are trustee reporting obligations. The duty to report notifiable events Under the notifiable events framework, trustees are subject to obligations detailed in: • sections 69–69A of the Pensions Act 2004 (PeA 2004), as amended • the Pensions Regulator (Notifiable Events) Regulations 2005, SI 2005/900 (the Notifiable Events Regulations) • TPR’s notifiable events directions • TPR’s General Code module on notifiable events • TPR's code-related guidance on the notifiable events framework The framework only applies to schemes which are eligible for entry into the Pension Protection Fund (generally, defined benefit (DB) schemes that were not in wind-up prior to 6 April 2005). Money purchase schemes, among others, are excluded from the

Law360: Private equity firm 3i Group plc defeated an application from its compliance director to challenge the winding up of its pension plan on 21 November 2025, as the High Court found that the firm was entitled to close the fund when it did.

Pensions analysis: The Deputy Pensions Ombudsman (DPO) has upheld a complaint that a pension scheme trustee breached multiple investment duties. Martin Scott of gunnercooke LLP looks at the decision.

FORTHCOMING CHANGE : In summer 2026, the DWP plans to consult on fiduciary duty guidance that aims to provide clarity on how wider considerations can be taken into account within existing duties, including system-level risks such as climate change and the long-term impacts of investments on members’ outcomes. It will also address how trustees may take account of members’ views and reaffirm the need to consider all financially material factors, while remaining consistent with acting in members’ best interests. Note that earlier attempts to put the guidance on a statutory footing through the Pension Schemes Act 2026 failed. For further information, see: Updated workplace pensions roadmap, DWP Parliamentary response, 19 January 2026 and Hansard debate: House of Lords (26 March 2026). It is often said that pension scheme trustees owe a duty to act in the best interests of the beneficiaries of the scheme. This Practice Note explores