PLSA conference: UK targeting 'safer, better, greener' pensions

Speaking at this year's Pensions and Lifetime Savings Association (PLSA) annual conference, Guy Opperman said that he was "optimistic" that the bill, which includes new climate change reporting requirements for large occupational schemes, would pass through the UK parliament before the end of the year. The Financial Conduct Authority (FCA) has also recently confirmed its intention to align climate risk reporting requirements for the schemes that it regulates with those set out in the Pension Schemes Bill.

Addressing the conference, Opperman described climate change as "a defining issue of our time", carrying potentially far greater risks to pension savings than those of natural variations in markets and interest rates.

Opperman was speaking on the same day that the PLSA published a new report (38-page / 4MB PDF) setting out ways to tackle what it described as "the barriers preventing pension funds from fully embracing climate-aware investment". Its recommendations, which it developed in conjunction with leading pension funds, include harmonised definitions of climate-aware investment terms, more widespread adoption of the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations around reporting and more training for trustees on environmental, social and governance (ESG) issues.

Pensions expert Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law, said: "The enormity of the climate change challenge calls for teamwork across the industry - not just at the regulatory level, but also within every scheme".

"Dealing effectively with climate risks and opportunities must and will change forever the relationships between trustees and their investment advisers and asset managers. Much closer collaboration and information-sharing will be needed as we all learn together how best to address these issues for the benefit of members," she said.

Pension scheme trustees are currently required to disclose how they take account of ESG factors, including climate change, to the extent that these may have a material impact on scheme members' savings. The Pension Schemes Bill will, once enacted, go much further, by requiring the largest schemes to assess the impact of climate change on their investments and to report that information to scheme members.

A consultation on the reporting requirements, which the government has proposed follow the 11 recommendations of the TCFD, closed last week. Opperman told the conference that there were 92 responses to this consultation, the vast majority of which were in favour. The requirements would initially apply to schemes with £5 billion or more in assets as well as to authorised master trusts, and would be extended to smaller schemes on a phased basis.

Opperman's speech covered a number of topical issues relevant to the pensions industry in addition to climate change including the regulation of defined benefit (DB) 'superfunds'; pension dashboards; auto-enrolment contributions; and financial inclusion. Opperman said that he was a "passionate supporter" of superfunds; and that substantive governance legislation would follow later in this parliamentary session, building on the interim regime put in place in response to the Covid-19 pandemic.

On the stronger powers for The Pensions Regulator (TPR) contained in the Pension Schemes Bill, including criminal sanctions, Opperman said that further guidance from the regulator and secondary legislation would follow before these were introduced. He emphasised that the purpose of the new sanctions was to protect pension scheme members and not to "frustrate legitimate business activity carried out in good faith".

Carolyn Saunders said that the implication of Opperman's comments was that these new powers, which had provoked considerable debate in the House of Lords, would remain unchanged.

"Whether the promised guidance will alleviate the industry's legitimate concerns remains to be seen," she said. "As currently drafted, these sanctions extend considerably beyond their intended scope of punishing those who wilfully or recklessly mishandle scheme assets."

Opperman said that a "legitimate debate and discussion" was needed over future auto-enrolment contribution increases. However, given the current state of the economy and increased burdens for businesses imposed by recent increases to the living wage, this would not be looked at in detail until next year. The government would look to international comparisons in order to inform this work, he said.

The minister also ruled out amending the Pension Schemes Bill to give trustees more powers to halt suspicious pension transfers, as called for by the Pension Scams Industry Group (PSIG). Members of the House of Commons Work and Pensions Committee had tabled a PSIG amendment to the bill, which would have brought in a condition that the statutory right to a transfer could have been removed depending on the results of due diligence undertaken by trustees in relation to an intended transfer to a suspicious-looking pension scheme.

Ben Fairhead of Pinsent Masons, who is a member of the PSIG, said that Opperman had addressed the proposed amendment in a letter to committee chair Stephen Timms (7-page / 814KB PDF) which was made public last week.

"This letter seems to suggest that the door might have been opened to allowing trustees to assert that the statutory right does not exist in circumstances where certain 'red flags' appear on a transfer request," he said. "This would, if correct, be a significant breakthrough in tackling scam transfer requests, although the letter is a little ambiguous as to the circumstances in which this could apply."