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Pensions: what's new this week - 20 June 2022

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20 June 2022

This week we cover topics including: Changes to TCFD reporting from 1 October 2022 plus revised guidance on SIPs/implementation statements; TPR guidance and updates on pension scams; TPR: reporting on climate – ‘a challenge but an opportunity’; TPR corporate plan 2022-24; DWP call for evidence: helping savers understand their pension choices.

Changes to TCFD reporting from 1 October 2022 plus revised guidance on SIPs/implementation statements

The climate change reporting framework for pension schemes will be amended from 1 October 2022 to include ‘Paris alignment’ reporting. This will apply to all in-scope schemes from that date (i.e. including £1bn+ schemes in the second wave of the rollout under the existing regulations) but will not apply in respect of a scheme year ending before 1 October 2022 even if the report is published after that date.

Trustees will be required to calculate a selected portfolio alignment metric and use this metric to identify and assess the relevant climate-related risks and opportunities. A portfolio alignment metric is one which gives the alignment of the scheme’s assets with the climate change goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels.

The government recognises the challenges of data accessibility and coverage of different asset classes; as with other metrics, the requirement will be subject to the limitation that trustees comply ‘as far as they are able’. Trustees will also have flexibility to select the type of portfolio alignment metric that is most appropriate to their scheme.

To assist trustees, the government has produced updated statutory guidance. It acknowledges that it is ‘not an entirely optimal outcome’ for trustees to be required to report against alignment metrics before the expected date of June 2023 when asset managers will be required to report the data, but considers that there are appropriate tools available and sufficient flexibility under the ‘as far as they are able’ principle to address this. The consultation response also emphasises the link between portfolio alignment and stewardship activities: for example, trustees are able to explain in their report the engagement they are undertaking with high-emitting firms. The guidance includes prescribed types of TCFD-aligned metrics to enable trustees to have clarity about compliance.

Read the consultation response.

Read the updated statutory guidance on TCFD reporting.

Read the draft regulations.

Updated guidance: SIPs and implementation statements

Alongside the above changes, the government consulted on updated guidance on trustee reporting in statements of investment principles (SIPs) and the implementation statement, and the revised guidance has now been published. This aims to provide greater clarity on stewardship, including voting and engagement. The guidance clarifies, for example, that when reporting in the implementation statement on ‘the most significant votes cast’ by trustees or on their behalf, a vote is likely to be ‘significant’ if it is linked to one or more of the scheme’s stewardship priorities or themes or due to the size of holding involved. It also encourages trustees to provide additional detail about asset manager voting policies/behaviour and the extent to which they are engaging with this. The guidance has been clarified in relation to financial versus non-financial factors following feedback, to state that the government ‘encourages trustees, if it is practical to do so, to keep under review non-financial factors that may not immediately present as financially material but have the potential to become so, particularly for schemes with a long-term horizon’. The guidance contains both statutory and non-statutory guidance; statutory guidance is signposted in the text and trustees must have regard to these paragraphs when complying with implementation statement requirements.

Read the updated guidance on reporting via the SIP and implementation statement.

TPR guidance and updates on pension scams

The Pensions Regulator (TPR) has published a new guide for schemes on reporting pension scams, produced jointly with the Financial Conduct Authority (FCA) and Action Fraud. The guide encourages schemes to report where (a) they believe a scam has happened; (b) a red flag has been raised during due diligence on a transfer request; or (c) a scam is suspected for some other reason. It includes information on who to report to, what information to provide and what will happen next.

The guide is accompanied by a blog post appealing for industry help in combatting scams. It sets out common themes in recent scams, for example high fees, unsuitable advice and the use of self-invested personal pensions (SIPPs). In line with TPR’s corporate plan (see below), it encourages schemes to sign up to the pledge to combat pension scams.

Separately, TPR has published a summary of work undertaken with the National Fraud Intelligence Bureau to assess the threat of pension scams. This looks at how threats are evolving and identifies some current trends and concerns, including high or unsubstantiated fees involved with pension transfers; unsuitable advice; cold calls originating overseas, and members being targeted to transfer to international SIPPs.

Read the guide and blog post.

Read the threat assessment summary.

TPR: reporting on climate – ‘a challenge but an opportunity’

TPR has published a blog post discussing scheme reporting in line with the Climate Change Governance and Reporting Regulations, as the first schemes begin to publish their reports.

Giving some reassurance to trustees, TPR acknowledges that there have been challenges to complying with the requirements, and it will be mindful of this when reviewing reports. TPR does not anticipate that it will issue penalty notices to schemes in the first wave of reporting unless they fail to publish a report or it is clear they have not made a genuine effort to comply with the regulations. Instead, reports will be reviewed to provide high-level observations and feedback to in-scope schemes; to help trustees and advisers of smaller schemes not in scope but who wish to improve their management of the climate-related risks and opportunities; and to inform the DWP review of the regulations in late 2023.

Looking to the future, the blog post discusses the potential for Sustainability Disclosure Requirements (SDR) to be imposed on certain occupational pension schemes and asset managers (discussed in the government’s Greening Finance Roadmap in October 2021). Detailed proposals have not yet been published but the blog post suggests that they may set similar expectations to TCFD reporting in relation to governance, strategy, risk management and the use of metrics and targets, and be integrated with existing TCFD requirements.

Read the blog post.

TPR corporate plan 2022-24

TPR has published its corporate plan, setting out its direction for the next two years. Key areas of focus are: dealing with current market volatility linked to issues such as Covid-19, global conflict, inflation and climate change; stopping pension scams; providing good value for money; ESG issues; and diversity.

Updates from the plan include:

  • the new Code of Practice will be published during 2022;
  • TPR is planning to launch its second consultation on the new DB funding code in autumn 2022 (depending on the timing of the consultation by the Department for Work and Pensions (DWP) on draft funding and investment regulations), with the new code becoming operational from September 2023;
  • TPR will launch a joint consultation with the FCA and DWP on a Value for Money Framework by the end of the year;
  • TPR will assess collective DC (CDC) schemes for authorisation from August 2022. It anticipates further activity on amended regulations to enable a broader market for CDC schemes. The DWP has indicated that it will consult on this towards the end of this year;
  • no update is given on anticipated changes to the notifiable events regime, saying only that these will become operational in due course;
  • TPR continues to encourage schemes to sign up to the pledge to combat pension scams and has developed a revised pension scams strategy that will be published during 2022, with actions rolled out during 2023; and
  • in relation to pensions dashboards, TPR will launch a programme of education to help schemes get ‘dashboard ready’, including one-to-one communications to each scheme at least 12 months ahead of their connection deadline. It will consult on its Compliance and Enforcement policy in time for regulating compliance from June 2023.

Read the corporate plan.

DWP call for evidence: helping savers understand their pension choices

The DWP has published a call for evidence to explore what support members of pension schemes need to help them make informed decisions about how to use their savings. The deadline for feedback is 25 July 2022.

The call for evidence has two strands: first, questions aimed at savers, exploring what information and support they receive and would like to receive in the run-up to taking their pension, at the point of accessing benefits and after; and secondly, questions aimed at schemes on what support and decumulation products they currently offer and what they might consider offering in the future. It focuses on whether changes already implemented by the FCA in relation to contract-based pension providers would help in the occupational pensions sphere. These include simplified wake-up packs being provided earlier and more frequently, and providing ‘investment pathways’: offering people taking drawdown without financial advice a range of investment plans based on what they intend to do with their pension pot.

The call for evidence also asks for input on whether CDC schemes could work in the DC decumulation market, and notes that the DWP is considering how CDC schemes might be extended beyond single or connected employers schemes to help it achieve its goals.

Read the call for evidence.