Pensions Bulletin 2022/39

Our viewpoint

MPs look into DB schemes’ LDI exposures

Parliament’s Work and Pensions Select Committee has launched a short inquiry on the lessons that can be learned from the recent rapid increase in collateral required of many DB pension schemes to support their liability-driven investment strategies.  This arose as a result of the unprecedented spike in gilt yields following the Government’s 23 September 2022 mini-budget.

At this stage the Committee is calling for evidence and would particularly like to receive it on the following issues:

  • The impact on DB schemes of the rise in gilt yields in late September 2022 and early October 2022
  • The impact on pension savers, whether in DB or DC schemes
  • Whether the Pensions Regulator has taken the right approach to regulating the use of LDI and had the right monitoring arrangements
  • Whether DB schemes had adequate governance arrangements in place – eg did trustees sufficiently understand the risks involved
  • Whether LDI is still essentially “fit for purpose” for use by DB schemes
  • Whether the experience suggests other policy or governance changes are needed – eg to DB funding rules

The deadline for submitting evidence is 15 November 2022.

Separately, the Institute and Faculty of Actuaries has issued a statement on recent gilt market volatility.  Amongst other things it says that the recent market turbulence may lead to discussions within the industry, primarily in relation to governance and amount of leverage used, rather than necessarily moving away from LDI.

The MPs intend to carry out a further inquiry in the New Year looking at DB schemes more widely, with issues likely to include DB scheme funding requirements and arrangements to protect pension benefits when a scheme is wound up.


We support the MPs looking into this area as it is clear outcomes for schemes using LDI varied significantly across the industry over recent weeks.  We suspect that they will gather plenty of evidence of the successful operation of LDI over the past 20 or so years, which allowed DB schemes to generally build very strong funding positions.

However, it is clear that some LDI strategies will need to evolve, both for the new higher interest rate environment we now find ourselves in, as well as in response to the challenges presented by the extreme market volatility immediately following the mini-budget.  The MPs report, when it comes, could be a useful nudge to Government in this respect.

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Pensions Ombudsman orders substantial redress against dishonest trustees

In a case involving the Pensions Ombudsman’s recently set up Pensions Dishonesty Unit, two trustees of the BWFS Occupational Pension Scheme have been ordered to pay redress of over £850,000 as a result of a Determination in which it was found that the trustees had committed multiple breaches of trust and many acts of maladministration, that had caused the likely loss of the members’ pensions.  Included in this finding was facilitating a form of pension liberation.

This scheme, set up in May 2013, was far from an ordinary occupational pension scheme.  Following a failed venture as an unregulated introducer in the “pension funding” business through offering potential clients pension reviews, Black & White Financial Solutions Ltd changed directions after a year of incorporation to set up the BWFS Occupational Pension scheme.

The two trustees, in their separate capacity as directors of BWFS, invited individuals to transfer their bona fide pension savings on the promise of receiving commission payments from certain investment companies, equal to 20% of their pension, and a fixed return of 3.5% pa (locked in for 10 years) based on their pension being invested into a portfolio of upmarket residential properties in London and the Home Counties.

The directors then proceeded to help themselves to a 15% commission (not disclosed to the members) as part of their investing the scheme’s funds in vehicles “that would most likely have been classed as exceptionally high-risk and hazardous by any competent financial adviser”.

This scam started to become apparent as individual members enquired about their pensions, only to be fobbed off.  And when these enquiries turned into complaints, and eventually the Pensions Ombudsman launched an investigation in response to these complaints, multiple failures of trusteeship were unearthed, which led to the above Determination.


This is another sorry pension scam tale dating back nearly ten years.  It is not clear whether the decision in this case will lead to the redress ordered being paid into the Scheme, but if not, as a properly constituted occupational pension scheme, the Scheme should receive payments from the Fraud Compensation Fund which is having to deal with a number of cases similar to this.

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Pensions Regulator publishes updated enforcement and prosecution policies

Following consultation earlier this year (see Pensions Bulletin 2022/18), the Pensions Regulator has now finalised its consolidated enforcement policy and its updated prosecution policy.

The new enforcement policy covers DB, DC and public service pension schemes and replaces and consolidates three previous compliance and enforcement policies, as well as updating for new powers given to the Regulator as a result of the Pension Schemes Act 2021.

The Regulator has also published a new enforcement strategy which sets out the overarching aims of the Regulator’s enforcement work (excluding automatic enrolment) and provides insight into the framework the Regulator applies when selecting cases for enforcement action.  The strategy document makes clear that when selecting a case for enforcement the Regulator aims to achieve one or more of the following outcomes – Prevention, Remedy, Restoration and Deterrence.

A blog accompanies the publication of these materials, which provides some insight into the thought process the Regulator went through when updating the policies.  The blog also announces that the Regulator has published updated and more accessible versions of its Case Team and Determinations Panel procedures which set out the steps the Regulator will follow when considering using its “reserved” powers, which require referral to the Determinations Panel.


As before, these updates are more in the nature of good housekeeping than signalling any difference of approach by the Regulator on compliance and enforcement issues.  The enforcement and prosecution policies have been finalised with some minor changes made to the drafts issued in May, as made clear in the Regulator’s consultation response.

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FCA sets out its anti-greenwashing proposals

The Financial Conduct Authority has published its long-awaited proposals on sustainability disclosure requirements, aiming to ensure consumers can trust sustainable investment products by removing “exaggerated, misleading or unsubstantiated sustainability-related claims” firms may make about their investment products.

Many of the proposals follow on from the FCA’s initial discussion paper last November (see Pensions Bulletin 2021/47) and inputs from the Disclosures and Labels Advisory Group, which was established alongside the discussion paper and comprises industry experts and consumer representatives.

In its new consultation paper the FCA proposes:

  • To simplify sustainable investment labels from those suggested last November. There will now be three permissible labels: “sustainable focus”; “sustainable improvers”; and “sustainable impact”.  These labels are complemented by consumer‑facing disclosures on the sustainability-related features of the products.  Products without a sustainability objective will not qualify for a label
  • Detailed disclosures to be targeted at a wider audience, such as institutional investors and consumers seeking more information. These comprise pre-contractual disclosures covering the sustainability-related features of investment products, ongoing sustainability-related performance information including sustainability-related performance indicators and metrics in a sustainability product report, and a sustainability entity report covering how firms are managing sustainability-related risks and opportunities
  • To prohibit the use of certain sustainability-related terms, such as “ESG”, “climate”, “sustainable”, “green”, “net zero”, to name but a few, in product names and marketing materials unless the product qualifies to use one of the above sustainable investment labels
  • To require distributors to ensure that in-scope product-level information and labels are displayed prominently to consumers. Where prohibited sustainability-related terms have been used (by overseas products), distributors must alert consumers as such
  • The introduction of a general “anti‑greenwashing” rule which applies to all regulated firms. This supplements the current requirement that firms should ensure information they communicate to clients is clear, fair and not misleading

Consultation closes on 25 January 2023.  The FCA expects to set out its final rules by the end of the first half of 2023, with the general anti-greenwashing requirement becoming effective immediately; labelling, naming and marketing, consumer-facing and pre-contractual disclosure requirements coming into force after 12 months; and other disclosure requirements coming into force after another 12 months.  The FCA also intends to expand the scope to include overseas products, FCA-regulated pension products, financial advisors and other areas in due course.


This ambitious and comprehensive new regime (for investment products) may well expand in future years.  However, the FCA acknowledges that it has more work to do before doing something similar for pension products, as what may work for shorter-term retail investors, may not quite fit the needs of longer-term pension savers.

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New Secretary of State for Work and Pensions announced

The new Prime Minister, Rishi Sunak, appointed his new cabinet within hours after the King invited him to form a Government on 25 October 2022.  Mel Stride is appointed as the Secretary of State for Work and Pensions, replacing Chloe Smith who had been in post since early-September.

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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.