Pensions Insight: 13 to 17 November 2023

In our latest insight we report on Paul Maynard’s appointment as the new Pensions Minister, the Court of Appeal’s refusal of ClientEarth’s climate change case against Shell, the Pensions Regulator’s views on what challenges schemes face in providing ‘good’ DC access, the Government’s call for evidence on the pensions clearing exemption, the latest PPF 7800 figures and the Bank of England’s system-wide stress scenario exercise.

Paul Maynard MP appointed as new Pensions Minister

Paul Maynard (MP for Blackpool North and Cleveleys) has been appointed as the new Pensions Minister in place of Laura Trott who has left the position following her promotion to Chief Secretary to the Treasury during the 13 November 2023 government reshuffle.

Mr Maynard most recently worked in the Department for Transport and, prior to that, at the Ministry of Justice. Prior to entering Parliament, he was a political adviser and speechwriter.

ClientEarth refused permission to appeal High Court’s dismissal of derivative claim against Shell

The Court of Appeal has refused ClientEarth permission to appeal the High Court’s dismissal of its application for permission to bring a derivative claim as a shareholder against the directors of Shell PLC for alleged breach of their statutory duties in respect of how they are dealing with climate change risk.

The High Court decided that ClientEarth had not established what was required to enable the court to grant permission to allow it to bring a derivative claim on grounds that either the directors had breached their duties or that the court should grant the relief sought. Permission is required from the court to continue a derivative action because such types of claims form an exception to the company law principle that it is for the company itself to decide whether to bring an action not its shareholders.

DC: Pensions Regulator blog on challenges to DC access

The Pensions Regulator’s 15.11.23 blog expands on Nausicaa Delfas’ recent speech outlining five principles that guide what ‘good’ defined contribution (DC) access to pensions savings looks like (see our Insight). The blog sets out seven challenges that the pensions industry must address in the journey to ‘good’ with an overall focus on ‘good’ involving schemes becoming ‘full-service providers’ providing saving, access and post-retirement services and support.

• Challenge 1: Making value for money an overall assessment of value not just cost and covering both accrual and retirement.
• Challenge 2: Increased innovation in products – collective defined contribution (CDC) will play a key part in decumulation, and the Regulator will have a central role in the introduction of decumulation-only CDC products.
• Challenge 3: There needs to be development in saver engagement so that savers have ‘agency to make decisions’ in all stages of pensions saving not just at retirement.
• Challenge 4: Schemes need sufficient data to have products that cater for the needs of their membership and individual circumstances.
• Challenge 5: Small pots present issues regarding access which need to be addressed before government initiatives are underway – schemes, including master trusts, should encourage consolidation.
• Challenge 6: Some schemes will need to provide decumulation offers through third parties – there will be issues with these structures that will have to be ironed out, e.g. how liability is apportioned.
• Challenge 7: Some schemes, particularly single employer trusts, will not have the capacity or capability to provide adequate access and they will have to consider consolidation.

Next steps: The Regulator will set up a series of virtual roundtables and publish interim guidance in 2024. The clear message from the Regulator is that to become ‘good’ certain schemes will have to consolidate.

Call for evidence on pension fund clearing exemption

On 13 November 2023, HM Treasury launched a call for evidence on the pension fund clearing exemption (see our Insight). Pension schemes in the UK are presently exempt from the requirement to clear certain derivative contracts and, in June 2023, the government extended the exemption for over-the-counter derivatives to 18 June 2025. The call for evidence starts the review of the long-term approach which the government announced earlier this year it would undertake.

The review looks at how clearing is used for hedging, how uncleared markets are used and the benefits compared to clearing, how pension funds could access clearing and meet its collateral requirements, the impact (if any) that there would have been on the liability-driven investment (LDI) autumn 2022 crisis had there not been a clearing exemption, and the effect of allowing the exemption to lapse in June 2025.

The call for evidence closes on 5 January 2024.

PPF 7800 index shows aggregate surplus has decreased

The latest Pension Protection Fund (PPF) report setting out the estimated funding position on a section 179 basis as at the end of October 2023 of the eligible 5,131 DB schemes shows that:

• the aggregate surplus of these schemes decreased over the month to £441.4bn from a surplus of £446.9bn at the end of September 2023;
• total assets were £1,371.0bn and total liabilities were £929.6bn;
• the funding ratio remained at 147.5% compared to the end of September 2023; and
• there were 473 schemes in deficit and 4,658 schemes in surplus.

Bank of England start scenario phase of system-wide exploratory scenario exercise

On 19 June 2023 the Bank of England (BoE) announced the launch of a new system-wide exploratory scenario exercise which will test how banks and non-financial institutions such as insurers, central counterparties, pension funds, hedge funds and asset managed funds react during a stress global financial market scenario (see our Insight).

On 10 November 2023, the BoE confirmed that it has started the scenario phase of the SWES. This involves participants responding to a hypothetical stress scenario that includes “severe, but plausible, 10-day shocks to rates and risky asset prices”. The severity is “faster, wider ranging and more persistent” than the March 2020 ‘dash for cash’ episode and the autumn 2022 LDI events.

The responses will be used to advance understanding of market functioning issues. The second round of the scenario phasing will take place in 2024 with conclusions to be published by the end of 2024.