Pensions Weekly Update – 26 October 2021

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Here is our weekly summary of key legal and regulatory developments relevant to occupational pension schemes, which you might have missed, with links for further information.

From 1 October 2021, the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (climate change regulations) came into force for the largest pension schemes and authorised master trusts. The government has now published a further consultation, amending draft regulations, updated statutory guidance and draft additional guidance. The proposal is that the climate change regulations should be amended with effect from October 2022, to include mandatory measurement and reporting in relation to portfolio alignment with the Paris Agreement goal of limiting temperature increases to 1.5 degrees Celsius above pre-industrial levels. It is proposed that this will be achieved by the introduction of a portfolio alignment metric, in order to provide pension scheme members with a simple way to understand a scheme's progress towards becoming Paris Agreement aligned and the potential exposure to transition risk. The draft regulations and updated statutory guidance reflect these proposals. The draft additional guidance, which forms part of the consultation, provides non-statutory "best practice" guidance for trustees in relation to their statement of investment principles, and statutory guidance setting out the government's expectations around trustees' implementation statements. There is a focus on stewardship activities. Consultation closes on 6 January 2022.
The Pensions Regulator (TPR) and the Pension Protection Fund (PPF) have issued a joint response to their joint consultation on proposed changes to the asset class information to be collected by the annual pension scheme return for defined benefit (DB) pension schemes. From 2023, DB schemes will need to provide more detailed asset data allowing TPR and, in particular, the PPF (for PPF levy purposes) to better assess investment risk. The level of data required will depend upon whether a scheme falls within tier 1 (i.e. it has section 179 liabilities of less than £30 million), tier 2 (i.e. it has section 179 liabilities of £30 million to £1.5 billion) or tier 3 (i.e. it has section 179 liabilities of £1.5 billion or more).
The Financial Conduct Authority (FCA) has issued a Policy Statement, which sets out the response to its consultation on a new category of authorised open-ended fund called the Long-Term Asset Fund (LTAF). The LTAF regime is designed specifically to facilitate investment in long-term, illiquid assets, which are seen as important in supporting economic growth. The FCA says, “If the new rules are successful, LTAFs will be launched and DC pension schemes will choose to invest in them, increasing their exposure to long-term illiquid assets, and improving the returns for their members in the longer term.” The Policy Statement also details the final rules and guidance that the FCA will introduce.
We have published two blogs on GMP equalisation over the last few days. In “GMP Equalisation Under the Microscope – Magnifying Tricky Transfer Issues”, we examine some of the points of detail that are causing a headache for trustees. In “GMP Equalisation Under the Microscope – Happy Third Anniversary!”, we comment on the results of our recent survey, three years on from the date that the Lloyds judgment was handed down. Thank you to all those who participated in the survey.