![Global rules on foreign direct investment](https://www.nortonrosefulbright.com/-/media/images/nrf/nrfweb/knowledge/publications/us_24355_legal-update--fdi-alert.jpeg?w=265&revision=a5124a65-abf9-40e4-8e96-9df39ffdb212&revision=5250068427347387904&hash=96B456347C3246E5649838DF281C5F5D)
Publication
Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | maggio 2024
On April 24, 2024, the Regulator published its DB Funding Statement focussed on trustees of schemes with valuation dates between September 22, 2023, and September 21, 2024 (“Tranche 19” schemes).
The backdrop to the Statement is the significant changes in market conditions in recent years, and the Regulator expects trustees to review their funding and investment strategies even if they do not have a T19 valuation. Thus, the Statement is relevant for all schemes.
Being the last Statement before the introduction of new requirements for funding and investment strategies in September 2024, the Statement’s tone differs from previous years. With the new DB funding regime very much in mind, the Regulator sets out the range of options for well-funded schemes.
The revised DB funding code, together with updated covenant guidance, is due to be published over the summer. Whilst it doesn’t technically to apply to schemes with valuation dates before September 22, 2024, the Regulator’s view is that it would be good practice for trustees currently in the midst of triennial valuation discussions to consider the steps to be taken to comply with the new regime ahead of time. Such forward planning will avoid having to make significant change before the next valuation in order to comply with the new regime.
Key messages
The shorter than usual Statement sets out the following main points:
General considerations for schemes currently undertaking a valuation
The Regulator has pulled together its thoughts on the general DB funding improvement levels. Covenant reliance will have reduced in many cases, but trustees could be under pressure from employers requesting contribution reductions as well as members asking for discretionary increases to pension benefits. Trustees are urged to take a holistic view of the scheme’s circumstances.
Open schemes may have seen a material reduction in their estimated liabilities, and given their typical immaturity, may have seen bigger shifts in funding levels. These trustees are likely to be focussing on technical provisions rather than long-term funding targets. Trustees of open schemes may therefore be maintaining greater covenant reliance for longer than their closed counterparts and they may be considering employer requests to use surplus to subsidise future accrual.
Despite a healthy scheme funding position in the majority of cases, trustees should not lose sight of ongoing global geopolitical instability, together with climate change, and their possible effect on investments and the employer’s future business prospects and thus scheme covenant.
Funding positions
The Regulator expects the scheme categorisation it set out in its 2023 statement to remain relevant in the coming year and provides separate guidance for each of three groups of scheme: those with a funding level at or above buy-out (“Group 1”); those with a funding level above technical provisions but below buy-out (“Group 2”); and those with a funding level below technical provisions (“Group 3”).
A summary of key actions for trustees and employers
Trustees and employers should:
Comment
With a new funding regime on the horizon, and many schemes in healthy surplus, it is unsurprising that this year’s Statement is positive in tone and shorter than usual. Trustees are being urged to look to their scheme’s end-game and to look at the full gamut of options available, bearing in mind that different strategies could have different member outcomes.
Next year’s statement, when the new funding regime has been in action for a few months, should be an interesting read.
In comparison to this year’s streamlined DB Funding Statement (see above), the Regulator’s Corporate Plan for 2024-27, issued on May 3, 2024, is positively hefty and runs to 22 pages.
The Plan outlines the Regulator’s ambition to protect members’ savings, oversee schemes and “evolve the regulatory framework and enable market innovation”. It sets out the Regulator’s priorities for the next three years as the pensions industry:
The Regulator plans to engage differently with the industry, having recently launched its three new directorates of compliance, market oversight and strategy, policy and analysis.
The coming year
The Regulator affirms that its headline priority for 2024-25 will be embedding the new DB funding regime. It has an ambitious list of 19 “key priorities” across protecting savers’ money, enhancing the pensions system, innovating savers’ interests and investing in its own people.
The new DB funding regime will require investment in the Regulator’s data and systems infrastructure. It will also necessitate enhancing the Regulator’s market oversight as the new funding regulations and DB funding code are adopted by schemes. The Regulator sees as key in this aspiration supporting a market for consolidation and risk transfer, and it intends to work with the DWP to support future DB superfund legislation. It will also support the government in establishing the PPF public sector consolidator after the consultation is complete.
As for the DC sphere, the coming year will see the Regulator evolving its approach to master trust supervision to challenge trustees’ focus on value for money ahead of any new legislation. It sees ongoing engagement with the industry as central in its continuing work on the value for money programme and environmental, social and governance aims.
Beyond 2024-25
Once the new DB funding regime is operating, the Regulator’s focus will increasingly shift towards the delivery of the DC value for money framework. Innovation is to be promoted across the sector, most notably in tackling deferred small pots and decumulation solutions.
In the auto-enrolment sphere, the Regulator intends to work with the DWP and stakeholders to prepare for the extension of the regime by the admission of younger workers and removal of the lower qualifying earnings threshold.
On trusteeship, the Regulator intends to enhance the system by raising standards generally. It will engage closely with the professional trustee industry and promote the new general code. It also acknowledges a significant shift in the increase in professional trustees and concentration of the trustee industry. It notes that mergers and acquisitions across professional trustee companies have made these entities systemically important for the delivery of good outcomes.
More widely, the Regulator plans to make greater use of data to improve its monitoring of trustee standards, including the development of a trustee register.
Budget
The Regulator’s funding is derived from a grant from the DWP to finance its Pensions Act 2004 duties (levy-funded activities) and a separate grant from general taxation relating to its auto-enrolment work. The budget for 2024-25 is expected to be £112.1m which represents a £10m reduction from the previous financial year, the Regulator having committed to achieving efficiency savings of 5 per cent in its levy-funded work and 23 per cent in connection with auto-enrolment activities.
The future
The Regulator has set out an impressively ambitious list of 23 “priority outcomes” across its regulatory and enabling work for 2024-25. These are as wide-ranging as ensuring DC schemes offer value for money and promoting growth in the consolidation market to overseeing auto-enrolment compliance and protecting savers from scams.
With a General Election later this year, the political uncertainty of the immediate future may hamper the Regulator in its realisation of some of its objectives.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Publication
Artificial intelligence (AI) raises many intellectual property (IP) issues.
Publication
We are delighted to announce that Al Hounsell, Director of Strategic Innovation & Legal Design based in our Toronto office, has been named 'Innovative Leader of the Year' at the International Legal Technology Association (ILTA) Awards.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023