In depth

Pensions legislation and case law update: the latest developments week ended 9 April 2021

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In this week’s update, we cover the Pensions Regulator’s climate change strategy, the Pensions Regulator’s pension scams webinar, updated guidance from the Competition and Markets Authority on the submission of compliance reports, the extension of the Corporate Insolvency and Governance Act 2020 temporary easements, 30 years’ of the Pensions Ombudsman and the challenge to the Government’s plans to align RPI with CPIH.

The Pensions Regulator publishes climate change strategy

The Pensions Regulator (the Regulator) has published a new climate change strategy with a lead message that 'ignoring climate change risks savers' retirements'. All scheme trustees are urged to 'act now to protect savers'. 

The strategy sets out how the Regulator will assist trustees with their obligations under the Pension Schemes Act 2021 (the Act) and what it expects from those schemes not yet within the scope of the new legislation. It also outlines what action the Regulator will be taking itself as a business to manage climate change risks. 

The Pension Schemes Act 2021 

The strategy emphasises that although the new requirements in the Act to maintain effective governance and make mandatory disclosures in respect of climate change risks and opportunities, will only apply initially to larger schemes (those with £5bn or more of assets and authorised master trusts and collective defined contribution schemes), "all schemes already have duties in relation to climate change". 

For example, trustees of schemes with 100 or more members are required to set out their policies on stewardship and on environmental, social and governance considerations (ESG) in their statement of investment principles (SIPs) and to publish their SIPs and implementation statements. The Regulator expects all relevant schemes to comply with these 'basics' – the quality of reporting may be taken as an indicator as to the standard of governance.

Time periods

The strategy goes on to set out the Regulator's thoughts on how things will be different over three different time periods from now; (1) to 2024 under 'sprint 1' (2) to 2035 in line with its Corporate Strategy; and (3) UK net zero by 2050. For example, to 2024 schemes should be working on their climate change policies whilst the Regulator will set out its expectations on climate change reporting, and publish its plans for becoming a net zero carbon emissions business by 2030.

Aims and objectives

The Regulator outlines three main aims with associated objectives:

Aim 1    

Better outcomes for savers by driving trustee action achieved through the Regulator's regulation and enforcement powers – trustees must action their words and intentions.

Aim 2    

Influencing debate on pensions and climate change by working with Government and other stakeholders.

Aim 3    

Taking part itself in the net zero transition by setting itself a 2030 net zero carbon emissions target.

Regulatory approach

The Regulator emphasises that in driving up standards and tackling risk with regards to the pension schemes it regulates, its approach is to focus on four areas, and it will adopt this same approach when working towards achieving its climate change objectives. These four areas are as follows: 

Area 1: Setting clear

  • Guidance will be published on the new climate change legislation.
  • The Regulator will share best practice Task Force on Climate-related Financial Disclosures reports.
  • There will be a climate risk management plan for superfunds.
  • The new single code of practice will include modules  on stewardship and climate change (see our insight update for further details).
  • The Trustee Toolkit will be updated.

Area 2: Identifying risk early

  • The Regulator will carry out a thematic review on scheme resilience to climate-related scenarios. 
  • It will also review implementation statements and publish its findings. 

Area 3: Driving compliance through supervision and enforcement

  • Relevant teams at the Regulator will receive climate change training to assist with relationship supervision.
  • To assist in identifying non-compliance with disclosure requirements, questions will be added to the scheme return requesting web addresses of the SIP, implementation statement and TCFD report. 
  • An index of web addresses for schemes' SIPs will be published on the Regulator's website.

Area 4: Working with others

  • The Regulator will participate in relevant third-party groups and forums.
  • Climate change will be included in discussions with stakeholders. 

The Regulator will also publish a Climate Adaptation Report in Autumn 2021 setting out its findings on how schemes are dealing with climate change.

The strategy provides useful insight on how the Regulator will help schemes deal with climate change, which is an issue that is only likely to increase in significance.  

The Pensions Regulator publishes pension scams webinar

The Regulator has published a webinar intended to support the pensions industry to make a ‘Pledge to Combat Pension Scams.’ The webinar comes after the launch of the Regulator’s November 2020 campaign urging the pensions industry to commit to six steps in pledging to protect savers from pension scams. The webinar covers victim stories, the role of the industry, the pledge to combat pension scams and how to report scams. The webinar notes that standards of anti-scam practices must be raised across the whole industry with organisations working together to build better lines of communication to help combat scams.

Updated CMA guidance on the CMA Order compliance reports

Development: 

The Competition and Markets Authority (the CMA) has updated its guidance on the Investment Consultancy and Fiduciary Management Market Investigation Order 2019 (the Order) and submission of the compliance reports which trustees, investment consultancy and fiduciary management firms subject to the Order must submit by 7 January each year. 

Key point: 

The guidance explains the importance of each of these parties being responsible for their own compliance. As appropriate, all must provide a compliance statement together with a certificate certifying preparation of the statement in accordance with the Order's requirements and that the entity has complied in all material respects with the requirements of the Order and reasonably expects to continue to do so.

The guidance also explains that a compliance report needs to be submitted by trustees even if a fiduciary management provider has not been used (in which case compliance is achieved because the trustees do not use fiduciary management).

Regulations prepare for a potential extension of the CIGA temporary easements

Development: 

We reported at the end of February 2021 (see Insight Update) that the Government had published draft regulations extending by a year to 29 April 2022, the backstop date on which the power under the Corporate Insolvency and Governance Act 2020 (CIGA) to make temporary amendments to corporate insolvency and governance legislation expires. These draft regulations have now been made into legislation and came into force on 1 April 2021.

The temporary provisions under CIGA were designed to help UK companies mitigate the economic effects which many have suffered as a result of the pandemic - the temporary amendment power was used to suspend personal liability of company directors through wrongful trading between 26 November 2020 to 30 June 2021.

Key point: 

Making this temporary amendment power available for another year prepares the way for further temporary changes to be implemented should there be an urgent need to do so. The new moratorium and restructuring plan processes and other temporary easements introduced under CIGA have caused some concern in the pensions industry not least because they could affect the amount of assets that are recoverable on an employer's insolvency and the ability of a scheme to bring insolvency and legal proceedings against a company. Our insight article provides further detail of the pension implications of CIGA.

The Pensions Ombudsman celebrates 30th anniversary 

The Pensions Ombudsman (TPO) is celebrating 30 years since its 1 April 1991 establishment. In this time the TPO has received over 100,000 written enquiries, resolved more than 25,000 disputes and issued almost 9,000 determinations. The number of staff employed by the TPO has increased significantly from 14 in 1991 to 113. In addition, the number of people approaching the TPO with an enquiry has increased by 44% over the last five years – from 4,998 in 2015/16 to 8,977 in 2019/20. 

Challenge lodged to Government’s decision to align RPI to CPIH

On 9 April the trustees of the BT Pension Scheme, the Ford Pension Schemes and the Marks and Spencer Pension Scheme announced that they will be seeking a judicial review of the Government’s decision to effectively replace RPI with CPIH from 2030. The statement that has been issued by the trustees of these schemes, which represent almost 450,000 members and £83bn of assets, confirms that the trustees “believe the far-reaching implications of this decision have not been fully considered”. 

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