Pensions Bulletin 2024/28

Chancellor launches pensions review

The Chancellor of the Exchequer, Rachel Reeves, has launched a “landmark” review of the UK pension system, with an initial focus on investment. This initial phase appears to have two aims. Firstly, to deliver an “investment shift” for DC schemes so that they commit more of their funds to UK productive assets, hopefully to the benefit of DC pension savers as well as UK industry. Secondly, to further pool the various funds that make up the Local Government Pension Scheme in order to “cut down on fragmentation and waste”, with a cited £2bn pa in fees and costs incurred across 87 funds being mentioned.

This first phase kicked off with a roundtable with pension industry representatives on 22 July 2024 and we understand that it will report in time for the Chancellor’s Autumn Budget. The Government intends to add provisions to the forthcoming Pension Schemes Bill (announced in the King’s Speech – see Pensions Bulletin 2024/27) as necessary.  For example, it will consider legislating to mandate pooling of the various LGPS funds if insufficient progress is made by March 2025. Other additions also seem possible, with Pensions Minister Emma Reynolds saying that “Over the next few months the review will focus on identifying any further actions to drive investment that could be taken forward in the Pension Schemes Bill”.

The next phase of the review starting later in 2024 will consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy.

FRC provides progress update to its Stewardship Code review

Following its announcement earlier this year that the Stewardship Code is to be reviewed (see Pensions Bulletin 2024/08), the Financial Reporting Council has now announced a significant update with “immediate” changes to reduce reporting requirements on existing signatories.

To recap, the Code is voluntary and sets high stewardship standards for those investing money on behalf of UK savers and pensioners, and those that support them. The FRC defines stewardship as “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.”

The FRC’s announced changes follow the completion of its engagement with over 1,500 stakeholders and seeks to address challenges signatories have fed back during the process. Effective for the next signatory application round in October 2024, the requirements for existing signatories to annually disclose all “Context” reporting expectations, and against “Activity” and “Outcome” reporting expectations for some Principles, have been removed, unless there are material changes. The FRC will also permit the use of content from previous reporting and cross-referencing of such reports. The FRC has also provided some clarifications to existing requirements and will be writing to signatories individually to inform them of how these changes impact them.

Going forward the FRC has established five themes to focus on for the next phase of the Code’s revision and will engage further with stakeholders on these in August and September before a formal public consultation on the Code later this year. The five themes are:

• Purpose – what defines effective stewardship, what this looks like in practice, and how reporting against the Code can help to deliver this;
• Principles – what reporting will be necessary to deliver on a renewed purpose of the Code;
• Proxy Advisors – how the Code might support greater transparency of their activities;
• Process – reducing the reporting burden while ensuring that information included in reports is useful and accessible to all underlying investors and other stakeholders; and
• Positioning – The FRC is working closely with other regulators such as the DWP, the Pensions Regulator and the FCA to support clarity in understanding the revised Code and its successful implementation.

The FRC has also announced the latest list of Code signatories. There are now 287 signatories, representing £50.1 trillion in assets under management, comprising 196 asset managers, 72 asset owners, and 19 service providers.

Dashboards connection deferral deadline imminent

A short reminder that where trustees wish to defer the 31 October 2026 deadline for connection to the pensions dashboards ecosystem (see Pensions Bulletin 2023/30), they must seek permission from the Secretary of State and they can only do this by making an application no later than 8 August 2024 and where a deferral has not been permitted previously.

If applying to defer, trustees must submit evidence to demonstrate that before 9 August 2023 at least one of the following applies:

• they had embarked on a programme to transfer the data held by the scheme to a new administrator;
• they had entered into a contract containing an obligation to retender the administration of the scheme, and the timetable for this is reasonable and conflicts with the connection deadline.

In addition, they must demonstrate that complying with the connection deadline would be disproportionately burdensome or would put the personal data of members at risk.

The trustees must also set out the steps being taken to ensure that the pension scheme can connect to the service at the earliest opportunity.

The Secretary of State may put back the 31 October 2026 connection deadline for the applicant scheme by up to 12 months or turn down the request.

The DWP issued concise guidance about this in December 2022 (which has been subsequently updated).