Pensions Bulletin 2020/49
Our viewpoint
3 December 2020
- Action promised on pension scheme voting rights
- SIP registry to go ahead
- PPF sets out latest risk snapshot in its Purple Book
- Same sex survivor pension law will be changed – but not for a while
- HMRC issues guidance on revised corporate insolvency priority order
- Revaluation provisions for 2021 published
Action promised on pension scheme voting rights
The pensions minister, Guy Opperman, has announced the creation of a Taskforce on Pension Scheme Voting Implementation to investigate the barriers preventing client voting policies from being implemented by fund managers in pooled funds.
Mr Opperman was speaking to the Association of Member-Nominated Trustees, whose “Red Lines Voting” campaign and recent report recommended the introduction of such a Taskforce. This follows concerns that fund managers are not using the votes of the shares they hold in the ways that their pension scheme clients would like.
The Taskforce has a focussed remit to look at:
- How to facilitate the delivery of solutions to voting system issues which overcome the present obstacles to trustees implementing their own policies
- How to increase the number of asset managers prepared to engage with their clients’ preferences and at least “align or explain” on trustee voting policies, including via pooled arrangements. Mr Opperman encourages trustees to tell their existing fund managers that they will switch to a manager that honours their voting policies if the current manager will not be able to do so in the near future
- Recommending regulatory and non-regulatory measures to ensure the convergence of asset managers’ approaches to voting policy and execution with trustees’ policies and preferences, especially in pooled funds
Simon Howard, the former Chief Executive of the UK Sustainable Investment and Finance Association, has been appointed Chair, with Sarah Wilson, CEO of Minerva Analytics, appointed as vice-chair. The Taskforce will be supported by the DWP, but will be independent of it.
Comment
The pensions minister delivered some strong words on the excuses fund managers have given for not following their clients’ voting wishes to date. And, using the phrase “I rule nothing out in making this work properly”, it seems clear he is prepared to deliver strong actions to get trustees’ voices heard.
SIP registry to go ahead
In the same speech given to the Association of Member-Nominated Trustees, Guy Opperman said that he was taking forward the recommendation of the UK Sustainable Investment and Finance Association in its Changing Course report issued in February that there should be a central directory of Statements of Investment Principles. This will be supported by the Pensions Regulator and the DWP.
This announcement is in keeping with a letter to Peers of 5 March in which it was suggested the web addresses of SIPs might be collected by the Pensions Regulator through the scheme return and then published online.
Comment
This SIP registry proposal is noteworthy, especially as what needs to go into the SIP has changed dramatically in recent times. It will also add to the pressure to ensure that trustees and their advisers remain up to date with their investment thinking.
PPF sets out latest risk snapshot in its Purple Book
In the 15th edition of the Purple Book published on 2 December, the Pension Protection Fund unsurprisingly shows a worsening risk profile as at 31 March 2020 compared to that in its 14th edition.
As at 31 March 2020, 63% of schemes were in deficit, with an aggregate deficit for these schemes of £229bn – up from £160bn at 31 March 2019. It is these schemes that matter of course, should their employers fail. Also, since 31 March 2019, the aggregate funding ratio on a section 179 basis has reduced from 99.2% to 94.9%.
The overall trend for de-risking has continued from previous years, with only 20% of scheme assets now invested in equities, compared to 24% in 2019 (although this latest figure was almost certainly deflated due to equity markets at 31 March 2020). The number of schemes in the PPF’s universe has also continued to fall as more schemes buy out or are wound up.
The report also examines the PPF’s probability of being self-sufficient by 2030 – a reduction from 89% as at 31 March 2019 to 83% as at 31 March 2020. This figure was published in the PPF’s annual report and accounts in October (see Pensions Bulletin 2020/42). For the first time this year the PPF also models a “Reverse Stress Test” to see what conditions could cause this self-sufficiency probability to drop below 50%. This deliberately extreme scenario sees equity returns drop by 6-7% pa until 2030.
Comment
This year’s report is almost certainly the calm before the storm. As we expect insolvencies to start to stack up over the coming period the PPF’s £5bn reserve could be put under strain. However, those DB schemes that keep hold of their sponsor might well present a smaller aggregate deficit to the PPF in next year’s Purple Book due to the expected recovery from the extreme nature of financial conditions at 31 March 2020.
Same sex survivor pension law will be changed – but not for a while
Nearly 3½ years after the Supreme Court ruled that, under EU law, pre 5 December 2005 pensionable service could not be excluded for the purpose of determining same-sex survivor pensions (see News Alert 2017/08), the offending words implying that an exclusion is allowable remain in UK legislation.
Guy Opperman has now made clear, in a letter sent to a Conservative MP whose constituent John Walker brought the legal challenge, that the legislation effectively no longer applies and will be repealed, but not until the next opportunity presents itself. He has also made clear that the position will not be affected by Brexit.
Comment
There is now quite a bit of primary legislative housekeeping for the pensions minister to undertake and hopefully this, amongst others, will find its way into the next Pensions Bill which may be with us before the end of this Parliament.
HMRC issues guidance on revised corporate insolvency priority order
To coincide with it moving up the insolvency priority order in respect of certain unpaid taxes (see Pensions Bulletin 2020/46), HMRC has published a policy paper explaining how these taxes are protected in insolvency procedures that start after 1 December 2020.
Comment
One of the last insolvencies to operate under the old rules is that of Arcadia which went into administration on 30 November.
Revaluation provisions for 2021 published
Regulations have been laid before Parliament setting out the revaluation required on the deferred pension in excess of GMP for those who left pensionable service before normal pension age and will reach their normal pension age during 2021. The Occupational Pensions (Revaluation) Order 2020 (SI 2020/1332) comes into force on 1 January 2021.
As in previous years it sets out revaluation percentages separately for pre and post 6 April 2009 pensionable service as the former is capped at 5% compound whilst the latter is capped at 2.5% compound.
Comment
This latest Order is as expected and in respect of the most recent period reflects CPI inflation to September 2020 of 0.5%.