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Pensions: What’s new this week 12 July 2021

Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of occupational pensions.

This week we cover: a consultation by the Pensions Regulator (TPR) on its approach to the upcoming climate change-related duties; a DB scheme survey by TPR; and responses to a recent Parliamentary report on pension scams.

Climate change-related duties: TPR consults on draft guidance, monetary penalties policy

The Pensions Regulator (TPR) has launched a consultation on its approach to the upcoming climate change‑related duties – in particular, draft guidance on governance and reporting of climate-related risks and opportunities, and an update to its monetary penalties policy covering breaches of the regulations.

TPR has indicated that it expects to be tougher on governance than reporting in relation to these new regulations. The opening section of the draft guidance underlines this approach, stating that TPR will be looking for clear evidence that trustees are taking proper account of climate change in making scheme decisions, have carried out analysis in a way that provides confidence in the results, and have seriously considered the risks and opportunities that climate change will present for their specific scheme and taken action accordingly. If TPR believes that the requirements have not been met, it is likely to treat a failure to carry out the underlying governance activities as a more serious breach than a failure to make disclosures.

The draft guidance is divided into sections on governance; strategy and scenario analysis; risk management; metrics; targets and reporting. In each case TPR sets out example steps for trustees to take and its expectations for reporting. Given TPR’s approach of prioritising governance activities, the consultation period is a valuable opportunity for trustees to familiarise themselves with TPR’s expectations and seek clarification if required. The guidance also gives an indication of the level of detail expected about each of these areas in scheme reports.

Further guidance is to follow on considering climate-related risks and opportunities as part of the employer covenant assessment (no date has been provided for this).

TPR’s emphasis on governance does not equate to a free pass on reporting: the draft appendix to the monetary penalties policy makes clear that there are mandatory fines for a failure to publish a climate change report in line with the regulations, and discretionary penalties for other breaches (examples are given of factors that could lead to a higher penalty being imposed). TPR has included indicative guidance of how it will assess compliance with duties that are imposed ‘as far as trustees are able’ and on the cumulative impact of multiple breaches.

This consultation will be of most interest to large pension schemes (≥£5bn in assets) and master trusts, that are currently preparing for a start date of 1 October 2021 for the new regulations, as well as other schemes (with ≥£1bn in assets) that will be covered in the second phase of the rollout. The consultation closes on 31 August 2021. TPR is also running a virtual workshop on 3 August as part of the consultation process: register here.

Read the consultation.

TPR: DB scheme survey

TPR has published the results of a survey considering DB/hybrid schemes’ administration practices and strategies, their approach to cyber security, the extent to which new duties on investment consultant objectives and fiduciary management are being met, and actions being taken in relation to climate-related risks and opportunities. The survey was carried out with 250 individuals in October and November 2020.

TPR has highlighted that the survey shows that DB schemes are not as prepared as they should be in relation to climate change, and that trustees should build capacity now, to understand what climate change will mean for their scheme and their employer’s covenant, and to include climate change in integrated risk management. The survey found that just under half of respondents had allocated time or resources to assessing any financial risks or opportunities associated with climate change, and that awareness of the work of the Taskforce on Climate‑related Financial Disclosures (TCFD) was relatively low, with almost two-thirds of schemes and over half of large schemes (1,000+ members) unaware of TCFD. Other points of note from the survey include:

  • 14% of schemes had experienced some form of cyber-attack or breach in the previous 12 months, the most common type being fraudulent emails or being directed to fraudulent websites (9%). Almost one-fifth of the schemes that experienced such a breach/attack reported a negative impact – the most common impacts being: personal data being altered, destroyed or taken (7%); temporary loss of access to files or networks (7%); and software/systems being corrupted or damaged (5%).
  • Large schemes discuss administration issues as an agenda item at least every six months, with almost 90% considering this quarterly. The survey contains some information on methods used by schemes to measure administrator performance. However, most schemes had little or no knowledge of the accreditations held by their administrator or the standards they complied with (the highest levels of awareness related to compliance with the industry code of practice on scams).
  • Awareness of the new duties on objectives for investment consultants and tendering for fiduciary management services increased with scheme size.

Read TPR’s press release.

Read the survey results.

Scams: responses to Parliamentary report

The Work and Pensions Committee has published responses by the government, TPR and the Financial Conduct Authority (FCA) to its recent report on pension scams. The responses include comments that:

  • TPR’s scams pledge now covers over 285 organisations, and TPR will launch a further campaign on its pledge in September.
  • The government will review the effectiveness of the new transfer regulations (including the suitability of the red and amber flags) within 18 months of the regulations coming into force.
  • The government will not include fraud from paid advertising (such as search engine advertising) in the Online Safety Bill 2021, but will consult on regulating online advertising later this year. It is also developing a Fraud Action Plan, which will commit key partners in the public sector and industry to do more to tackle fraud, and will be published later this year. The Committee has criticised the government for not agreeing to include paid advertising in the Bill, noting that the FCA supports its inclusion and has commented that online advertising (for example, for pension products) is a major source of problems: read more.

Read the responses to the report.