Pensions Bulletin 2018/33

Our viewpoint

Trustees reminded of their legal duties to consider climate risk

ClientEarth, the environmental law charity, has written to the trustees of 14 large UK pension schemes to remind them of their obligations to consider climate risk in relation to their schemes’ investments.  The schemes are those that the House of Commons’ Environmental Audit Committee did not classify as “more engaged” with taking action to assess and minimise their exposure to climate risk during its recent Green Finance inquiry (see Pensions Bulletin 2018/22).

In the letters, ClientEarth summarises its interpretation of trustees’ legal duties in this area, outlines the available evidence on the financial risks of climate change, and sets out actions that it believes the schemes should be taking to address the risks.  The letters note that trustees’ legal obligations in respect of climate risk are not static, saying that advances in the evidence available on the financial risks of climate change, along with rapidly evolving market standards in responses to climate change-related risks, are relevant to how a court would assess trustees’ actions against their legal duties.  The final section warns the trustees that the letter has put them “on notice” that they could face legal action by scheme members if they fail to take climate risk seriously.

ClientEarth has published two reports alongside the letters.  The first provides a more detailed summary of the available evidence on the financial risks of climate change and the investment opportunities related to the transition to a low-carbon economy, commissioned by ClientEarth from an independent consultant.  The second, produced by an advisory firm on behalf of ClientEarth, reports on a survey of climate-related activities by 30 large asset owners, including 11 UK pension schemes.  It concludes that climate risk management and disclosure is becoming increasingly mainstream for asset owners and that market standard practices are growing in sophistication.


Some people may dismiss the idea of climate-related legal action against pension scheme trustees as far-fetched.  However, an increasing number of climate legal cases are being brought around the world, often initiated by NGOs seeking to drive action to address climate change.  ClientEarth has already proved its effectiveness in court – notably through three successful air pollution cases against the UK Government – and it clearly has pension schemes’ responses to climate change on its radar screen.  Trustees have been warned!

Pension scams – Regulators launch advertising campaign

Press releases from the Financial Conduct Authority and the Pensions Regulator have announced a joint advertising campaign to raise awareness of pension scams and the most common tactics used by fraudsters.

This latest “ScamSmart” advertising campaign will urge the public to be on their guard when receiving unexpected offers about their pension and to check who they are dealing with.  It will target pension holders aged 45 to 65 – the group most at risk from pension scams.

This comes as a new poll commissioned by the regulators reveals that almost a third (32%) of pension holders aged 45 to 65 would not know how to check whether they are speaking with a legitimate pensions adviser or provider.  Scam victims lose an average of £91,000 each according to the press releases.

It is believed that only a minority of pension scams are ever reported.  The regulators are urging anyone who believes they may have been targeted to come forward.

The campaign will recommend four simple steps for the public to protect themselves from pension scams:

  • Reject unexpected pension offers whether made online, on social media or over the phone
  • Check who they are dealing with before changing pension arrangements – check the FCA Register or call the FCA contact centre to see if a firm is authorised by the FCA
  • Don’t be rushed or pressured into making any decision about pensions; and
  • Consider getting impartial information and advice

The public is also urged to report potential or actual scams to the Action Fraud agency.


Whilst any advertising campaign is welcome we think it would be better if the Government and its agencies showed more urgency about taking concrete action to stop pension scams.  For example, the cold calling ban (see Pensions Bulletin 2018/30) has still not come into force and the proposed restriction on the statutory right to transfer (see Pensions Bulletin 2016/49) is being held back until probably 2019.

Attention is rightly focussed on the plight of the thousands of pension scheme members who are defrauded every year.  But pension scheme trustees are in a dreadful position, which worsened last week (see Pensions Bulletin 2018/32).  Not only is there nothing they can do to prevent a member from exercising their legal right to transfer if they insist on it – even if the trustees think it is a scam – but they are now at risk of having to pick up the tab when the member’s benefits disappear.

DB transfers experience: new FCA advice rules from 1 October 2018 – what impact will they have on take-up rates?

From 1 October 2018, new FCA rules will require all DB pension transfer advice to include a Transfer Value Comparator (“TVC”).  The TVC will show in graphical form the transfer value offered by the DB scheme together with the estimated “risk-free” cost of replacing the client’s DB income in a DC environment through an insured annuity.

We expect the significant gap between the transfer value and TVC replacement cost will come as a surprise to some members and financial advisers.  It remains to be seen what impact these new rules will have but because the relative “generosity” of a scheme’s transfer value basis will become more transparent, we anticipate schemes with less “generous” transfer values could have lower take-up rates.

We continue to monitor the pattern of transfer quotations and payments for the DB schemes we administer, and the practices adopted by trustees, to see how things are changing following the introduction of Freedom and Choice in April 2015.

Key findings from our latest quarterly update include:

  • Quotation rates in Q2 2018 increased slightly since the previous quarter, but are still below the record level of activity during 2017
  • Interest in transfer values continues to be highest at older ages, with an average age of 54 across members requesting a quotation in Q2 2018, compared with 51 for the deferred population as a whole
  • Member interest in partial DB transfers is increasing. The first six months of 2018 saw double the number of partial transfers taken, compared with the whole of 2017

PPF proposes further weakening of valuation assumptions

The Pension Protection Fund is proposing a weakening of the assumptions used in various PPF valuations in order to bring them in line with current pricing in the bulk annuity market.  This follows a weakening implemented in December 2016 following a similar review of market pricing.

The latest proposed changes are as follows:

  • A weakening of the mortality assumptions, by moving the projection model from CMI 2014 to CMI 2016; and
  • A further weakening by using slightly higher discount rates for certain tranches of benefit

The new assumptions will cover valuations carried out under sections 143 (PPF entry) and 179 (PPF levy) of the Pensions Act 2004, and certain other valuations for PPF purposes.  As before, they err on the side of understating the liabilities in order to reduce the risk of taking schemes into the PPF that could have bought out better benefits in the market.

The PPF estimates that, based on section 143 calculations as at 31 March 2018 for an average scheme, the approximate impact is a 2% and 4% reduction for pre-97 and 97-09 pensioner liabilities respectively, and around a 7% reduction for both pre-97 and 97-09 non-pensioner liabilities and slightly less for post-09 liabilities.  There would also be an improvement in the PPF 7800 index – which tracks the aggregate section 179 funding position of schemes eligible for PPF protection – with the combined deficits of those pension schemes in deficit reducing by just over £50 billion to £149 billion as at 30 June 2018.

Consultation closes on 21 September 2018, with the PPF Board intending to introduce these changes for valuations with an effective date on or after 1 November 2018.


The reduction in the strength of the basis corresponds with our experience of recent buy-in pricing.  However, the PPF basis remains only a very broad approximation of buy-out pricing.

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