UK pensions in 2021: key trends and developments for trustees and sponsoring employers - Gowling WLG

Interest in climate responsible investing heats up.

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... Over the past few years, the government has been extending the scope of the statutory requirements for Statements of Investment Principles which apply for trustees of occupational pension schemes. Many of these apply to schemes with more than 100 members but some, such as the requirement that annual report and accounts must also contain an ‘implementation statement’ which is to be made publicly available, apply to all occupational pension schemes.

In terms of ESG investment issues, requirements to consider long-term sustainability of investments were followed by obligations to specify policies on financially material considerations (including ESG considerations). In addition, where ESG factors are considered in investment decisions, regulations already require trustees to document how they assess new or emerging risks.

In 2021, these will be augmented by climate-specific reporting requirements. The Bill gives the government the power to introduce secondary legislation requiring disclosures based on the Taskforce on Climate-related Disclosures (TCFD). The DWP has issued draft regulations for consultation.

The proposed regulations cover:
  • governance, strategy and risk management, along with metrics and targets, for the assessment and management of climate risks and opportunities (the Climate Governance Requirements).
  • publication of climate risk disclosures that are aligned with the TCFD recommendations (the TCFD Disclosure Requirements).
The Climate Governance Requirements will apply to the largest occupational pension schemes first:
  • on and from 1 October 2021 for schemes with over £5 billion in assets; and
  • on and from 1 October 2022 for schemes with over £1 billion in assets.
The TCFD Disclosure Requirements will also apply to the largest occupational pension schemes first, applying by the earliest of:
  • within seven months of their first scheme year that ends after 1 October 2021 or by 31 December 2022 for schemes with over £5 billion in assets; and
  • within seven months of their first scheme year that ends after 1 October 2022 or by 31 December 2023 for schemes with over £1 billion in assets.
Both the Climate Governance Requirements and the TCFD Disclosure Requirements will apply to all authorised master trusts and authorised CDC schemes in line with the dates set out above for schemes with over £5 billion in assets.

In addition to these reporting requirements, the Pensions Climate Risk Industry Group has issued non-statutory guidance for the trustees of occupational pension schemes on assessing, managing and reporting climate-related risks. This guidance is likely to go into force in the first quarter of 2021.

Finally, the FCA has announced that it intends to consult on implementing TCFD Disclosure Requirements for asset managers and contract-based schemes in the first half of 2021. The rules are expected to be finalised by the end of 2021 and go into force at the beginning of 2022.

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