• Pensions Regulator sounds climate change warning to pension schemes
• Climate change disclosures extended to all large firms
• DWP seeks to have Fraud Compensation Fund debts paid off within 10 years
• MaPS under the microscope
• DB master trust self-certification regime launched
• GMP conversion Bill published
• Pension schemes newsletter 134

Pensions Regulator sounds climate change warning to pension schemes

The Pensions Regulator has published a climate adaptation report in which it warns that too few pension schemes give enough consideration to climate-related risks and opportunities, which means investment performance and saver outcomes could suffer.

Based on surveys of schemes undertaken for the Regulator last year, the report recaps and explains that while schemes are more engaged than before, in 2020 only 43% of DC schemes took account of climate change when formulating their investment strategies and approaches (see Pensions Bulletin 2021/05) and, in the same year, 51% of DB schemes had not allocated time or resources to assessing any financial risks and opportunities associated with climate change (see Pensions Bulletin 2021/28).

The Regulator acknowledges that practices are evolving but warns that there is much still to be done.  It also acknowledges that lack of climate-related data could be a barrier for schemes adapting to climate change.

The report also has some words for the DB superfund market, saying that the Regulator will seek to ensure that DB superfunds meet its requirement for a 'climate risk management plan' and that the plan is effectively implemented.  It will do this as part of its initial assessment of individual superfund models, as ceding schemes transfer in and during ongoing supervision.

The Regulator also says that, following its July consultation on the governance and reporting of climate-related risks and opportunities (see Pensions Bulletin 2021/28), it will publish its final guidance in November.

The Prudential Regulation Authority and Financial Conduct Authority also published climate adaptation reports on the same day and the Financial Reporting Council is due to publish its own before the end of the year.

Comment

The Regulator’s report is part of the UK’s National Adaptation Programme in which government and various public sector organisations set out what they will be doing, in this case between 2018 and 2023, to be ready for the challenges of climate change.  This is the first of potentially a number of such contributions from the Regulator to this programme.

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Climate change disclosures extended to all large firms

The largest UK companies, financial institutions and Limited Liability Partnerships will, from 6 April 2022, have to disclose climate-related financial information on a mandatory basis.  This follows the conclusion of a March 2021 consultation by the Department for Business, Energy & Industrial Strategy, the results of which were announced on 29 October.

Regulations will impose these new requirements and to that end The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021 were laid on 28 October 2021 in draft form, and will come into force for accounting periods starting on or after 6 April 2022 subject to parliamentary scrutiny.  Regulations for Limited Liability Partnerships will follow.  Non-mandatory guidance to support in scope companies in their disclosures will be issued before the end of the 2021, following parliamentary scrutiny of the regulations.

Which entities are in scope?

The following organisations are in scope:

• All UK companies that are currently required to produce a non-financial information statement – being UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market, or are banking companies or insurance companies
• UK registered companies with securities admitted to the Alternative Investment Market with more than 500 employees
• UK registered companies not included in the categories above and Limited Liability Partnerships; in both cases with more than 500 employees and a turnover of more than £500m

What needs to be disclosed?

The required disclosures are as follows:

• A description of the company’s governance arrangements in relation to assessing and managing climate-related risks and opportunities
• A description of how the company identifies, assesses, and manages climate-related risks and opportunities
• A description of how processes for identifying, assessing, and managing climate-related risks are integrated into the company’s overall risk management process
• A description of
  • the principal climate-related risks and opportunities arising in connection with the company’s operations
  • the time periods by reference to which those risks and opportunities are assessed
• A description of the actual and potential impacts of the principal climate-related risks and opportunities on the company’s business model and strategy
• An analysis of the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios
• A description of the targets used by the company to manage climate-related risks and to realise climate-related opportunities, and of performance against those targets
• A description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities, and of the calculations on which those key performance indicators are based

These new disclosures stem from the 2020 roadmap (see Pensions Bulletin 2020/46) in which the Government undertook to implement the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) for a range of organisations including companies and occupational pension schemes.

TCFD disclosures have already been implemented for premium listed companies by the Financial Conduct Authority from 1 January 2021 and for the largest occupational pension schemes by the DWP from 1 October 2021 (see Pensions Bulletin 2021/24).  The FCA is expected shortly to settle its proposals to require TCFD disclosures by asset managers, life insurers, and FCA-regulated pension providers and separately to issuers of standard listed equity shares (see Pensions Bulletin 2021/26).

Comment

TCFD requirements continue to be rolled out to meet the Government’s target of them applying across the economy by 2025.  The improved transparency of corporate pension sponsor reporting will be welcome to market participants including trustees.

It is notable that we are seeing different implementations of the TCFD principles depending on which part of government is doing the implementing.

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DWP seeks to have Fraud Compensation Fund debts paid off within 10 years

In a consultation that reviews the Fraud Compensation Levy ceiling, the DWP is suggesting that the current 30p per member ceiling for Master Trusts and 75p per member ceiling for all other occupational pension schemes should be increased – to 65p and £1.80 per member respectively.

These new ceilings (that will need to be set by regulations) are intended to enable the Pension Protection Fund to set higher levy rates than currently so that it can meet the significant deficit that will shortly start to build up as a result of the High Court case of PPF v Dalriada Trustees in November 2020, necessitating a loan from the DWP.  The levy set by the PPF for 2021/22 was 30p for Master Trusts and 75p for all other occupational pension schemes (see Pensions Bulletin 2021/15).

The DWP says that the loan is expected to cover claims relating to 122 schemes and amount to approximately £250m over the period 2021 to 2025.  It would like to see its loan paid off by 2030/31.

The DWP is rejecting suggestions that:

• Schemes with robust governance systems should be exempt from paying a levy
• A measure other than per member should be used to set the levy
• The levy be subject to a fundamental review in the light of the increased demands it will make of schemes following the Dalriada judgment
• Schemes set up after the frauds occurred resulting in higher claims on the Fund should not have to contribute

If the current 30p and 75p levy rates were to continue the DWP estimates that over the ten years to 2030/31 some £182.3m would be raised.  This would increase by some £216.3m over the nine years to 2030/31 if the proposed new ceiling rates were charged.

The consultation sets out the regulations that would be needed to increase the levy ceilings from 2022/23 onwards.  Responses to DWP’s proposals are required by 10 December 2021 and it seems that the regulations will be laid before Parliament in the New Year.

Comment

This is the first major challenge to a Fund to recompense members of occupational pension schemes for fraud, set up in the light of the Maxwell pension scandal in the early nineties.  For much of its existence it has not had to pay out very much at all and, until recently, levy raising was largely unnecessary.

No-one likes to take their share of the pain, especially when it was not their fault, but occupational pension schemes will need to further dig into their pockets to fill the hole in member benefits created by the pension liberationists at a time when setting up a bogus registered pension scheme was all too easy.

The consultation itself is a disappointment, with no options to consider.  Whilst there is some logic in master trusts being charged a lot less, as most of the fraud arose out of transfers from DB schemes, trustees of such schemes were largely powerless to block suspect transfers.

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MaPS under the microscope

A review of the Money and Pensions Service, undertaken by its sponsoring department, the DWP, reveals the significant challenges it has faced since being established in October 2018.  Stating that its development is a “work in progress”, the review identifies areas where MaPS has failed to live up to expectations to date, although it acknowledges that it “could not have had a more challenging start” but is now making “good progress”.

Amongst the 19 recommendations, many of which are calls for improvement, are the following relating to pensions:

• “Specific consideration should be given to the funding position of the Pensions Dashboard Programme, in consultation with DWP and HMT”.  This comes from a concern that, as a complex project “there are many ways in which it could fail” and a concern that the necessary development costs, being borne by MaPS, could come under pressure to the detriment of the success of the project

• “MaPS should explore how Pension Wise can be evolved to achieve more efficient and effective outcomes, looking at service redesign where appropriate, including how MaPS works with pension providers themselves and how Pension Wise could dovetail more effectively with their customer communications, subject to satisfying the requirement for impartiality”.  Here there is a concern that there may be duplication of provision between pension providers and Pension Wise.  With a clear need to increase take up of guidance sessions, MaPS is to look into whether it might be possible to use commercial organisations to deliver Pension Wise

Comment

As Departmental Review reports go, this is hard-hitting, but there is acceptance that the work that MaPS has been set up to deliver is needed.  It has, unfortunately, had a bad start across a number of fronts, as the report makes clear.

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DB master trust self-certification regime launched

A self-certification regime for DB master trusts, hosted by the Pensions and Lifetime Savings Association, has been launched.  It involves the completion of a standard template by such schemes, developed by an industry working group led by the DWP.

This initiative stems from the March 2018 White Paper in which the DWP said that it intended to look at how a new accreditation regime could help encourage existing forms of DB consolidation through offering members, trustees and sponsors confidence that these vehicles meet or exceed a set of clearly defined standards.

The PLSA has also published guidance to support DB master trusts completing the process.  This says that the self-certificate is a means by which DB master trusts can provide information – on a voluntary basis – on their structure, governance, operations, and on the process for joining and leaving the master trust.  However, the PLSA says that whilst self-certificates provide useful information about the DB master trust, they should not be used as an assessment of the quality of the scheme.

Comment

There are no self-certified DB master trusts on PLSA’s website right now, but presumably their names and certificates will start to build up over the coming months.

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GMP conversion Bill published

The Bill being sponsored by independent MP Margaret Ferrier, announced in June (see Pensions Bulletin 2021/26), has now been published ahead of its Second Reading debate on 26 November.  As a result, we can now see for the first time what it contains.  It is also now clear that this is no ordinary Private Members’ Bill as it is supported by the DWP given that it prepared the Explanatory Notes.

The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill seeks to address a number of concerns, expressed over the years by the pensions industry, in relation to the operation of GMP conversion, by making the following changes to the Pension Schemes Act 1993:

• Clarifying that the GMP conversion legislation applies to survivors as well as earners
• Removing from the Act the detailed conditions that must be met in relation to contingent survivors’ benefits post conversion; instead providing for a power for regulations to be made to set out required conditions
• Removing from the Act the requirement for the employer to consent to GMP conversion; instead providing for a power to set out in regulations who has to consent to the conversion
• Removing from the Act the requirement to notify HMRC that GMP conversion has taken place

The Bill also enables regulations to make transitional or saving provisions in connection with the changes above coming into force – for example to provide for schemes which are in the process of carrying out a GMP conversion exercise when the Act comes into force.

Comment

This Bill is welcome news indeed, not only that it is taking steps to resolve a number of long-standing concerns, but that it is a Government Bill in all but name.  We hope that as a result it will not suffer the fate of most Private Members’ Bills and instead reach the statute book before next summer’s recess.  If this comes to pass it will enable the DWP to consult on the necessary regulations in relation to contingent survivor benefits and consent issues.  And once the whole package is in play this should help those who wish to resolve the inequality issue through conversion – at least when it comes to the DWP law.

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Pension schemes newsletter 134

HMRC’s latest pension schemes newsletter addresses a number of topics, starting with three pensions-related measures under the heading of Autumn Budget 2021.  They are:

• The response to the call for evidence on the low earners’ anomaly
• The investment to be made to improve the administration of pensions tax reliefs (including digitising the current paper claims system for relief at source)
• That the Finance Bill to be published on 4 November will contain legislation to extend Scheme Pays reporting and payment deadlines in relation to annual allowance charges

The newsletter also announces the continuation until 31 March 2022 of the four remaining temporary changes to pension processes introduced to help scheme administrators during the Covid-19 pandemic.  Amongst the remaining topics are more news about the migration to the Managing pension schemes service and some pension flexibility and registration statistics.

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