In the latest update, we look at appointments to the Pensions Regulator’s Determinations Panel, the Investment Association’s updated Principles of Remuneration on executive pay and pensions, the Asset Management Taskforce report on stewardship, the fast approaching end date for LIBOR and PASA’s update on pensions dashboards.
New appointments to the Pensions Regulator’s Determinations Panel
The Pensions Regulator (the Regulator) has confirmed that former Financial Regulators Complaints Commissioner, Antony Townsend, will become the Chair of the Regulator's Determinations Panel (the Panel), the body responsible for making formal decisions on cases where the Regulator seeks to use certain powers.
Mr Townsend will take over as Chair on 7 April 2021 from Mr Andrew Long who has been Chair for eight years. Four new members have also been appointed to the Panel and will join on 1 January 2021 for a four-year term. The four new members are Shrinivas Honap, Anne Fletcher, Megan Forbes and Stephen Mount. Biographies can be found here. This will take the total number of committee members to ten.
The Regulator commented that the new appointments will assist in its "ambitious long-term strategy to build on its clear, quick and tough approach" and that they bring a wealth of skills, knowledge and experience which, Mr Townsend, noted will help the Panel fulfil its role in ensuring that the Regulator continues to use its extensive powers "wisely and fairly", powers that will very soon be added to by the Pension Schemes Bill.
Further 'clampdown' on executive pension arrangements: The Investment Association Principles of Remuneration for 2021
The Investment Association (the IA) consists of 250 members ranging from smaller, specialist UK firms to European and global investment managers with a UK base. It periodically issues Principles of Remuneration which set out institutional shareholders' expectations for executive remuneration policies and practices.
The IA has issued updated Principles of Remuneration (the Principles) and has also issued separate guidance setting out its expectations on executive remuneration issues specific to the COVID-19 pandemic.
The revised version of the Principles notes that the pandemic means that there will be a greater focus on executive remuneration and the accompanying press release references, in particular, a further "clamping down… on executive pension perks in a move to promote fairness and good employee relations".
It has been common practice for executives' pension contributions to be significantly greater than for wider staff members and, although there has been a considerable move in recent years towards aligning contributions for executives with the majority of other employees, there is now a strengthening against those companies that have not yet taken adequate steps in this area.
The IA's letter to FTSE 350 companies confirms that its Institutional Voting Information Service will give the highest level of warning, a 'red top', to companies that do not produce a credible action plan of alignment by the end of 2022, where pension contributions for incumbent directors are 15% or more of salary. There is also an expectation that new executive directors will automatically join with a pension contribution in line with the majority of the workforce; failure to do so will result in a red top on the remuneration policy.
The letter to FTSE 350 companies notes that remuneration committees should not seek to 'isolate' executives from the effects of the pandemic in a way that is not consistent with the approach adopted for the remaining workforce and this encompasses a continuing and, in places, strengthened approach in respect of pensions. Although the Principles are of greatest significance for listed companies, all companies are encouraged to follow them in keeping with best practice.
Asset Management Taskforce report on stewardship published
The Investment Association has also published a report (the Report), produced by the Asset Management Taskforce, which sets out twenty recommendations to "place stewardship at the heart of an agenda to 'build back better' post-coronavirus".
The Report provides a 'blueprint' for the integration of stewardship into the investment process which is centred on taking action across three pillars: strengthening stewardship behaviour, stewardship for clients and savers through the generation of sustainable value and achieving savers' goals; and the creation of an economy-wide approach to stewardship.
The Asset Management Taskforce was set up in October 2017 and is made up of investment managers, stakeholders and regulators. It is led by HM Treasury and supported by the IA.
The proposals are designed to help market participants, such as investment managers and asset owners, to increase their stewardship activity over different asset classes, including bonds and pensions through the creation of a Council of UK Pension Schemes. The Report seeks Government support for the establishment of this Council to improve stewardship in pension assets.
Whether the creation of such a body does come to fruition or not, the continuing direction of travel towards the further enhanced stewardship of pension scheme assets and increased responsibility for all investors including pension schemes to fully consider the impact of climate change and sustainability matters is clear.
Cessation of LIBOR at the end of 2021 fast approaching
The expected cessation of the interest rate benchmark, LIBOR (the London inter-bank offered rate), after the end of 2021 is fast approaching.
The January 2020 factsheet: Calling time on LIBOR explains that LIBOR is based on banks' submissions of their interbank borrowing rates but that, since the 2008 financial crisis, banks do not fund themselves in this way. This means that LIBOR has continued through the use of 'expert judgment' rather than being based on actual transactions.
Following a Financial Conduct Authority (FCA) investigation, the FCA announced in 2017 that 2021 would be the final year that panel banks would participate in providing submissions to LIBOR because it was "not only potentially unsustainable but also undesirable, for market participants to rely indefinitely on reference rates that do not have active underlying markets to support them." The FCA and the Bank of England went on to announce the mandate of the Working Group on Sterling Risk-Free Rates to catalyse a transition to SONIA (the Sterling Overnight Index Average) in the UK.
We would expect that most, if not all, defined benefit scheme trustees will already have assessed with their advisers what impact the cessation of LIBOR will have for their schemes and undertaken appropriate transition work. If they have not, we recommend that they liaise with their advisers without delay.
Pensions Dashboards Working Group update on pensions dashboards
The Pensions Administration Standards Association (PASA) Pensions Dashboards Working Group November 2020 Update explains that the Pensions Dashboards Programme (the PDP) will publish the initial data requirements for pensions dashboards this month and that, following this, PASA will publish detailed guidance on how schemes and providers can prepare themselves for the onboarding of pensions dashboards. The Working Group was set up to work alongside stakeholders including HM Treasury as dashboards are developed.
The November update follows the PDP's October 2020 Update Report which summarised the action already taken by the PDP in the development of the dashboard programme.
Under current timeframes, it is expected that schemes and providers will be legally required to connect to the pensions dashboards system from 2023.
If the pensions dashboards system can be introduced as intended to enable individuals to access all of their pension information in one place, this should assist with better retirement planning and reduce the possibility of benefits remaining unclaimed. It will be no mean feat to gather all of the information required but it is certainly a worthy ambition that we hope to see achieved.