Pensions Bulletin 2023/08
Our viewpoint
2 March 2023
- Pensions Regulator announces increased focus on ESG and climate change reporting compliance
- Future of Britain report: what part should pension schemes play?
- Pension scams – Pensions Regulator withdraws its reporting guide
- FCA calls for reporting of pension transfer scam concerns
- PASA guidance on data readiness for buy-in and buyout published
- Taskforce on Social Factors launched
Pensions Regulator announces increased focus on ESG and climate change reporting compliance
The Pensions Regulator has launched a campaign to “make sure that trustees are meeting their environmental social governance (ESG) and climate change reporting duties”.
The campaign will include schemes being contacted by email to check whether they are complying with the regulatory requirements relating to statements of investment principles and implementation statements, focusing on the investment policies regarding financially material ESG and climate factors.
The Regulator states that it will be conducting a review of statements of investment principles and implementation statements over the summer, the outcome of which will be shared with the industry to highlight good practice.
Initial analysis has shown that a number of schemes did not provide the valid website addresses required for these documents to be compliant. These schemes can expect to be hearing from the Regulator which is also warning schemes in scope that enforcement action may be taken against them for breaches of these requirements, including fines of up to £50,000 for corporate trustees.
There is also a reminder for trustees with schemes in scope of the Taskforce on Climate-Related Financial Disclosures (TCFD) requirements that they must include a link to their TCFD report in their Regulator annual return. The regulator will be issuing a statement on TCFD reports in the spring.
Comment
We are very supportive of the ESG and climate change reporting requirements but worry slightly that the tone of the press release in emphasising enforcement action and fines might incentivise a tick-box compliance approach instead of a more meaningful engagement from trustees. Hopefully the review outcome will be positive and encourage trustees to embrace best practice.
Future of Britain report: what part should pension schemes play?
An interesting report entitled “A New National Purpose: Innovation Can Power the Future of Britain” authored by Tony Blair and William Hague and published by Tony Blair’s Institute for Global Change, recommends UK pension schemes should be incentivised to consolidate and invest more in UK assets.
This wide-ranging report posits that “another revolution is now taking place as developments in artificial intelligence (AI), biotech, climate tech and other fields begin to change our economic and social systems” and that we are entering “a new age of invention and innovation” in which Britain must set a radical new policy agenda in order to find its niche.
In this context, the report questions the UK’s ability to effectively deploy the significant capital it has in pension schemes. In particular, the UK appears to be one of the only major economies where domestic pension funds have in effect abandoned investment in UK companies - noting that although the UK has the second largest pensions market in the world, overseas pensions invest 16 times more in venture capital and private equity in the UK than domestic public and private pensions do.
To redress this, the report recommends incentivising pensions consolidation and encouraging investment in UK growth equity by making the pension capital gains tax exemption applicable only to funds with over £20 billion under management that allocate a minimum percentage of their funds to UK assets. It also recommends combining the PPF and National Employment Savings Trust (NEST) to create a single investment vehicle to help with market consolidation.
Comment
We were interested to read the report. Much of what is written tallies with our own recent thinking about whether the UK pensions system really is delivering as much as it could be to the country.
On the face of it, the UK’s c£1.5tn of DB pensions could be a huge asset to the country if invested to both generate higher returns and support positive change / growth in the economy. However, under the current “rules of the game”, it is often right for individual schemes to de-risk and increasingly invest in safer assets (largely bonds and cash) when the focus of the current system is on member security and delivering the promised benefits (and no more).
When taking a more holistic approach and considering how the UK as a whole is struggling for investment in such vital areas as net zero infrastructure and future technology companies, it is encouraging to see others also think about the ways in which the pensions system could evolve.
The report suggests that consolidation and new tax incentives are the solution. Perhaps. Alternative approaches could also be considered, such as allowing sponsors to more easily share in the returns generated in pension schemes (providing some incentives to invest in growth) and potentially greater protections provided by the PPF (to maintain high levels of protection for members).
Pension scams – Pensions Regulator withdraws its reporting guide
The guide to reporting pension scams published by the Pensions Regulator last June (see Pensions Bulletin 2022/24) and produced with the assistance of the Financial Conduct Authority and Action Fraud, has been removed from its website (although it still appears to be available to view through the National Archive). The document contained guidance to the pensions industry as to when a report should be made, what should be reported and to whom.
The Regulator’s current expectations on reporting now forms part of its Avoid pension scams webpage. This includes the instruction to email the FCA about all transfers of concern and also report potential scams to the FCA (after reporting to Action Fraud).
Comment
It is baffling as to why the Regulator has seen fit to remove its guide, particularly given the paucity of information on its webpage on what exactly it wants people to report in instances of concern.
FCA calls for reporting of pension transfer scam concerns
The Financial Conduct Authority would like to hear from pension schemes or trustees who have carried out checks and have serious concerns about a pension transfer. In a recently published webpage, the FCA is particularly seeking reports on:
- Individuals who provide unauthorised advice on pension transfers; and
- Increases in the volume of transfers using the same adviser
More details on both are provided. The FCA would also like to receive reports in relation to six other potentially scam-related matters.
Comment
Well-meaning initiative, but like the Regulator’s new webpage thin on what exact information it would like reported.
PASA guidance on data readiness for buy-in and buyout published
The Pensions Administration Standards Association (PASA) has published guidance designed to support trustees and administrators in improving data quality before an insurance transaction with a view to achieving a streamlined transaction process and more certain and preferential costs.
In addition to noting the consequences in a transaction context of holding incomplete and poor quality data and summarising the key data items that insurers are likely to request, the guidance also sets out a list of useful actions that trustees can take in advance of buy-in or buyout to demonstrate good governance and suggests a handful of “quick wins”.
Comment
Much of this guidance is common sense but it will be useful for trustees and administrators to have it all pulled together in one place. Many will also hopefully benefit from the suggested pre-emptive actions and quick-wins.
Taskforce on Social Factors launched
It has been reported that the DWP has now launched the Taskforce on Social Factors, trailed in its response in June last year to its March 2021 call for evidence on the consideration of social risks and opportunities by occupational pension schemes (see Pensions Bulletin 2022/28).
The taskforce includes representatives from pensions schemes, asset managers, data providers, cross-industry collaboration groups and civil society, as well as a number of government departments and regulators, such as the Financial Conduct Authority and The Pensions Regulator - the DWP will provide secretariat support. It is expected to operate for one year and deliver guidance and recommendations to the pensions and investment industry, with the work expected to contribute to further development of wider social factor principles, standards, and metrics.
Comment
It is heartening to see the various players in the industry coming together to collaborate in helping trustees identify, assess and manage financially material social considerations.