Pensions Bulletin 2017/02

Our viewpoint

Shareholder Rights Directive – another leaving present from Brussels for UK pension schemes?

Lengthy revisions, now nearing completion, to what had been a concise 2007 Shareholder Rights Directive, impose two significant new obligations on UK occupational pension schemes – one on shareholder engagement policy and another on investment strategy and arrangements with asset managers.  But whether UK schemes will be required to implement them may come down to the Brexit timetable.

After nearly two years in the making, a near final version of the amendments to the Directive has now been referred to the Permanent Representatives Committee (Coreper) in Brussels.  Adoption of the Directive will follow approval by Coreper and at a plenary vote of the European Parliament.  There will then be a 24 month period for its contents to be transposed into the law of member states.

The revisions are intended to encourage shareholder engagement, particular in the long term, through laying down detailed new requirements in shareholder identification, transmission of information, facilitation of exercise of shareholders rights, transparency for institutional investors, asset managers and proxy advisors, remuneration of directors and related party transactions.

“Institutional investors” include occupational pension schemes (strictly IORPs as per the recently settled IORP II Directive – see our LCP guide) and for them there are two main new obligations.

Engagement policy

Pension schemes will need to develop and publicly disclose on their website a policy on shareholder engagement which must describe:

  • How investee companies are monitored on matters such as strategy, financial and non-financial performance and risk, capital structure, social and environmental impact and corporate governance
  • How dialogue is conducted with investee companies
  • The exercise of voting rights and other rights attached to shares
  • Co-operation with other shareholders
  • Communication with relevant stakeholders of the investee companies; and
  • The management of actual and potential conflicts of interests

In addition, each year schemes will be required to publicly disclose how this engagement policy has been implemented, including a general description of their voting behaviour, an explanation of the most significant votes and their use of the services of proxy advisors.  Schemes will also need to publicly disclose how they have cast any significant votes in the general meetings of companies in which they hold shares.

If schemes decide not to comply with one or more of the above requirements they must publicly disclose a clear and reasoned explanation.

Investment strategy and arrangements with asset managers

Pension schemes will also need to publicly disclose on their website how the main elements of their equity investment strategy are consistent with the profile and duration of their liabilities, in particular long-term liabilities, and how they contribute to the medium to long-term performance of their assets.

Where an asset manager invests on behalf of the scheme, either on a segregated or pooled basis, the scheme must publicly disclose (and update annually) on its website the following aspects of its arrangement with the asset manager:

  • How it incentivises the asset manager to align its investment strategy and decisions with the profile and duration of the scheme’s liabilities, in particular long-term liabilities
  • How it incentivises the asset manager to make investment decisions based on assessments about medium to long-term financial and non-financial performance of the investee company and to engage with investee companies in order to improve their performance in the medium to long-term
  • How the method and time horizon of the evaluation of the asset manager's performance and the remuneration for asset management services are in line with the profile and duration of the scheme’s liabilities, in particular long-term liabilities, and take absolute long-term performance into account
  • How the scheme monitors portfolio turnover costs incurred by the asset manager and how the scheme defines and monitors a targeted portfolio turnover or turnover range; and
  • The duration of the arrangement with the asset manager

Where the arrangement with the asset manager does not contain one or more of such elements, the scheme must give a clear and reasoned explanation why this is the case.

To assist schemes make the above information available the Directive imposes obligations on asset managers to make relevant disclosures to schemes on an annual basis.


These are potentially onerous new requirements.  However, whether this Directive will find its way into UK law could all be down to timing as right now it is more than possible that it will not become EU law until after the Government fires the Article 50 starting gun for Brexit.  If this proves to be the case then it would seem that this will be one of the first EU Directives that the UK can ignore.

The GMP tidy up continues

Contracting out may have ended over nine months ago now, but the work required to reconcile the GMP records held by schemes with those held by HMRC has yet to peak, if the contents of HMRC’s Countdown Bulletin 22 are anything to go by.

The sheer scale of the issue is revealed by the statement that HMRC has received three million queries in relation to the GMPs of those who left service prior to 6 April 2016, 60% of which fall into the category of “incorrect membership held on HMRC records”.

HMRC will also be starting to send out its “closure scan” in relation to those who were in service at 6 April 2016 and it seems highly likely that this will generate many non-matching records and non-matching data queries by schemes.

The Countdown Bulletin gives much detail about the reconciliation process which will be of interest to those undertaking this work.  What comes through in this latest Bulletin is HMRC’s desire to automate as much of its side of the work as possible, on which it appears to be having some success.  But given the huge delays experienced by schemes during 2016, many doubt whether HMRC is applying sufficient manpower to its side of the GMP reconciliation work.  This would appear to be borne out by the Bulletin saying that as HMRC needs time to issue the closure scan data, it will be June 2017 before HMRC can accept requests for GMP reconciliation re-runs in relation to those who left service prior to 6 April 2016.


There remains much work to be done before GMPs are reconciled with HMRC’s records, following which schemes will need to decide on and implement a certain level of rectification (ie change their GMP records with potential knock-ons to the scheme benefit that accrued with the GMP).  Only then will schemes be in a position to address the GMP inequality issue, consultation on which closes this coming Sunday.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

Subscribe to receive our Pensions Bulletin and News Alerts