The Pensions Regulator (TPR) and the Pension Protection Fund (PPF) have published a joint consultation on proposals to update the way asset information is collected from defined benefit (DB) pension schemes.

The consultation proposes taking a “proportionate approach” to the data collected, which aims to reflect that smaller schemes may have more limited resources and simpler investment strategies.

TPR uses the information to help measure investment risk, while the PPF uses it to help calculate the PPF levy.

A new tiered approach has been suggested, whereby TPR and the PPF will base the information they ask for on scheme size.

Smaller schemes will be in tier one and “will only see minor changes”, according to the consultation, while larger schemes will be placed in tier two, with TPR and the PPF asking these schemes to provide more ‘granular’ data.

Tier three will house the largest schemes, which will be asked to continue to carry out the bespoke stress calculation, as required under the PPF levy rules.

The boundary between tier one and tier two will be set at £20m, based on s179 liabilities, while the boundary between tier two and three will be set at £1.5bn.

Under the proposals, schemes will be able to ‘trade up’ tiers if they want to voluntarily provide more information.

“Our proposals are largely derived from the more granular set of asset categories used in the bespoke stress calculation for the PPF levy,” the consultation stated.

“Therefore, this will be familiar to the one in seven schemes that currently submit this information for levy purposes – and the advisers and investment managers who support them.”

TPR and the PPF said that the changes have been proposed due to the increased scheme allocation to bonds over the last 10 years, which means it is “increasingly important” to be able to assess the investment risks within schemes’ bond allocations by maturity, credit quality and currency, rather than simply to distinguish them from growth assets, such as equities.

Furthermore, the consultation noted there had been a change within growth assets, with schemes moving away from traditional equities and increasing their use of diversified growth funds, particularly among smaller schemes.

TPR added that a “key component” of its approach to best practice in scheme management is that the amount of investment risk taken should reflect the maturity of the scheme’s obligations and strength of the employer covenant, and it wanted schemes to have a clearer picture of their investment risk in preparation for new DB funding requirements.

The PPF also has an interest in better assessment of investment risk for the charging of a risk-reflective levy.

The consultation will run for six weeks and will close on 10 June 2021.

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