Pensions Bulletin 2018/22

Our viewpoint

Responses to MPs’ climate letter published

The House of Commons’ Environmental Audit Committee has published the responses it received from the 25 largest pension schemes to its letter about climate change (see Pensions Bulletin 2018/10).  The letter was sent as part of the Committee’s Green Finance inquiry which is examining how the UK can mobilise the investment necessary to meet its climate change targets and factor sustainability into financial decision-making.

All 25 schemes responded to the letter, showing varying degrees of engagement with the topic.  According to a summary table produced by the Committee, 23 of these schemes said they have discussed climate risk at trustee board or investment committee level, albeit nine of them did so as part of a wider discussion about environmental, social and governance (ESG) issues.  Twenty-two schemes mentioned at least one action they had taken in relation to climate risk, and fourteen of them had discussed climate risk with their actuarial adviser.  Seven schemes have so far committed to reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations (see Pensions Bulletin 2017/28) and a further eight are considering doing so.

The Committee’s table included a high-level qualitative assessment of each scheme’s engagement with the topic, based on the letters received.  It classified eleven schemes as “more engaged”, meaning that they are taking steps to assess and minimise their exposure to climate risk.  A further ten schemes were described as “engaged”, ie making some progress, and the rest were “less engaged” because they had not formally considered climate change as a strategic risk.

Six schemes score well on all criteria used by the Committee in drawing up its table: Barclays Bank UK Retirement Fund, BBC Pension Trust Ltd, Greater Manchester Pension Fund, HSBC Bank Pension Trust (UK) Limited, West Midlands Pension Fund and Universities Superannuation Scheme.


This high profile exercise has set a clear expectation that, at least for larger schemes, trustees should be treating climate change as a strategic risk and discussing it at board level.  The schemes’ responses make fascinating reading, showing the wide variety of approaches to climate risk adopted by the UK’s largest pension schemes.  Those from the more engaged private sector schemes provide valuable insights for trustees wanting to understand how they might tackle climate risk themselves.

Alternative to the emergency tax code for lump sum withdrawals sought

In a wide-ranging report that explores the taxation of people’s savings income and identifies areas that may be simplified, the Office of Tax Simplification (OTS) takes aim at the emergency tax code that is often used for lump sum withdrawals from DC pensions under the freedom and choice regime – the so-called uncrystallised funds pension lump sum (UFPLS) in which 25% is usually paid tax free whilst the balance is taxed as pension income.

Under the emergency code, the assumption made is that the element of the lump sum treated as pension income will be repeated every month.  This has generally resulted in too much tax being taken from this element, with the recipient having to put in a claim to HMRC for a refund.  Dynamic coding, introduced in the summer of 2017, is helping as it enables tax overpayments and underpayments to be cleared during the year and will result in more people having a balanced tax position at the end of the tax year.  But it will not end the use of emergency tax codes.

The OTS observes that “the tax treatment of pension fund withdrawals is not well understood” and suggests that more could be done to help people in this respect.  The OTS would like to work with HMRC on this point, in addition to working to identify options other than initial tax deductions using emergency tax codes.


Although no further detail is given it seems that one possibility is for the emergency tax code to be replaced by a code appropriate for a basic rate taxpayer.  This should minimise the risk of low income taxpayers being asked to find additional tax from money they may no longer have, whilst accepting that higher rate taxpayers will likely have to make an additional payment when self-assessment catches up with them.

It would be good for a solution to be found to this issue, as it is surely not right for HMRC to set out to over-deduct.

IRM guidance for covenant advisers issued

Guidance to assist covenant practitioners in implementing Integrated Risk Management (IRM) processes within DB pension schemes has been published by the Employer Covenant Working Group – a forum established for employer covenant advisers to discuss best practice, raise standards and promote awareness.

The guidance, intended to be read in conjunction with its earlier document “Principles of covenant assessment for scheme valuations”, discusses the interaction of funding risk, covenant risk and investment risk, how the risks can be managed and approaches to evaluating the risks.


Although primarily aimed at covenant practitioners the guidance is a useful read for anyone involved with risk management of pension schemes.

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.

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