Pensions Bulletin 2021/24

Our viewpoint

Climate change governance and reporting – action now required

On 8 June, shortly before the G7 summit starts in Cornwall, the DWP published its response to the January consultation (see Pensions Bulletin 2021/04) on regulations and statutory guidance that provide the mechanism through which initially certain large occupational pension schemes will be required to address climate change risk and opportunities through a new governance and annual reporting requirement.

The final versions of the regulations and statutory guidance were also published.  Introducing the response, Minister for Pensions and Financial Inclusion, Guy Opperman, said that the Government “will legislate this summer” and trustees (of affected schemes) should now focus on implementing “these world-leading measures”.

Although a number of changes have been made to the regulations, and particularly the statutory guidance, many of these are simply by way of clarification or to tighten up the drafting.  So the regime remains essentially as we described it in January (see News Alert 2021/01).  Where easements have been made, they are within the bounds of the broader policy intent.  Amongst the more significant changes are the following:

  • The definition of “relevant insurance contracts” has been altered mainly to include bulk annuity contracts that do not exactly match scheme benefits, to reflect market practice. This is of potential significance because the value of such contracts is deducted from the scheme’s assets when determining whether the scheme has “relevant assets” above the £5 billion and £1 billion thresholds from which the governance and reporting requirements operate
  • Scenario analysis continues to operate on a triennial cycle, but now where trustees undertake fresh analysis within three years they automatically reset the cycle
  • When setting and reporting on climate-related metrics, trustees will not have to collect and report on Scope 3 emissions in the first scheme year that they are subject to the requirements. Scope 3 is the most difficult of the three emission types to evaluate
  • The criteria determining what constitutes a ‘popular’ default arrangement for a DC scheme – and so the expected level of assessment when carrying out the required strategy, scenario analysis and metrics activities – has been changed, from having 250 members invested, to holding either at least £100m or comprising at least 10% of the scheme’s DC assets. This will be of benefit to small default arrangements such as those that have come into existence as a result of ‘mirror’ bulk transfers
  • Target setting must take place during the first scheme year for which the regulations apply, rather than on the first day on which the regulations apply, and it is clarified that performance must be measured in each scheme year, rather than annually

Concluding the response, Mr Opperman confirmed that these measures – that will, for the first time, quantify the potential impact of climate risk on a scheme’s assets (and liabilities where DB) – “will not, and cannot be used to direct pension scheme investment in any way”.

The response document also makes clear that whilst the largest of UK pension schemes will be leading the UK and indeed the pensions world in making disclosures aligned with the recommendations of the Task Force on Climate-related Financial Disclosures, this is part of a much wider programme under which the Government intends to make TCFD-aligned disclosures mandatory across the UK economy by 2025, with a significant proportion of mandatory requirements in place by 2023 (see Pensions Bulletin 2020/46).

In particular, the Financial Conduct Authority also plans to consult on TCFD-aligned rules for asset managers and for workplace personal pension schemes “imminently”, with final rules published by the end of 2021 to come into force in early 2022.


The DWP has completed a huge job of work in getting this pensions initiative over the finishing line, with the scale of the task and the attention paid to the detail revealed in a lengthy and comprehensive response document.  The requirements have now been clearly set out, with the promise of an early review in 2023.

Trustees of affected schemes now need to start the move from planning to implementation, with approximately 100 needing to set up the new governance requirements by 1 October 2021, with the first of these likely to need to report on their endeavours by 31 July 2022.

As to the assertion that these requirements do not direct pension scheme investment, whilst indubitably true, elsewhere in Government a number of climate-related ‘red lines’ are being drawn.  In a speech given on 1 June by Alok Sharma MP, President of the COP26 climate talks, pension funds and other financial institutions were urged to “exit coal finance”, increase investments in climate action in developing and emerging markets, and “protect nature” by ensuring no investments contribute to deforestation (by 2025) and that investments contribute to the restoration of the natural world (by 2030).

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Pension tax relief reform off the agenda?

A request by the Treasury Select Committee for “the entire approach to pension tax relief” to be urgently reformed appears to have been turned down by the Government.

In March the MPs, following an inquiry by them into how the tax system should respond to ensure long-term fiscal stability following the pandemic, suggested that reform was needed to tax relief on pension contributions given, in their view, that this relief particularly accrued to the highest of earners.  This recommendation was one of many in a wide-ranging report.  They didn’t suggest what reform they had in mind.

The Government’s response to the entire report has now been published and in respect of pension tax relief the Government says that reforms in recent years have sought to strike an appropriate balance, and that altering this “could have profound and far-reaching impacts” and as such “more radical changes to pensions tax relief would require careful consideration”.


This doesn’t totally rule out future reform and perhaps the Government would not have disclosed that it had plans for pension tax relief reform in any event, but the response suggests that any radical changes are on a slow timescale.  However, this doesn’t rule out any tinkering in the meanwhile.

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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.