Pensions Bulletin 2024/30

Pensions Regulator warns against minimum compliance with ESG duties

The Pensions Regulator has published the findings of its review of how pension trustees are complying with their wider ESG duties.

The Regulator carried out three different types of review of the statements of investment principles (SIP) and implementation statements (IS), by checking around 3,500 defined benefit, defined contribution and hybrid pension schemes to see how many had provided a working weblink to their SIP and IS disclosures on their scheme returns. They used machine-reading to identify ESG related content for around 375 schemes, and carried out a more in-depth review of ESG disclosures for around 50 schemes.

The key findings were that, while the vast majority of trustees are meeting their ESG-related disclosure requirements, many, especially smaller, schemes are only delivering minimum compliance and:

• Trustees often failed to demonstrate ownership of their policies or key activities in respect of ESG.
• Broadly, where trustees delegated activities to managers, trustees often failed to explain or demonstrate oversight of ESG activities.
• Where schemes are invested in pooled funds, a number of trustees highlighted they had limited ability to influence underlying managers on decisions related to ESG.

The Regulator makes the following recommendations for trustees who:

• should dedicate sufficient time and resource to preparing their SIP and IS, and take proportionate and appropriate action to mitigate risks;
• must take ownership of ESG activities, including reviewing fund manager policies on ESG-related issues if invested in pooled funds;
• should provide more detail on policy to show they are considering specific ESG-related risks to their scheme, the scheme’s voting activity, and asset management arrangements; and
• should consider going beyond climate change reporting to include, for example, considering social factors (see Pensions Bulletin 2024/10).

The report also said that if trustees believe they lack the expertise or scheme governance scale to be able manage financially material ESG risks effectively, they should consider whether consolidating their schemes could improve the way in which these risks are managed for their members.

Pensions Ombudsman seeks to tackle long waiting times

The Pensions Ombudsman (TPO) has published its Corporate Plan for 2024-25 and two themes come through clearly from it.

The first is that the cyber-attack on TPO last June (see Pensions Bulletin 2023/51) has had a long-lasting and substantial impact on the service that the TPO can provide and its ability to meet its key Performance Indicators (KPIs) – the cyber-attack is mentioned 11 times in the new Plan.

The second theme is that TPO is aware that customers are facing “unacceptably long waiting times” and states that reducing “waiting times is at the heart of this year’s plan”. To address this, TPO has been carrying out a “root and branch” review of its operating model and intends to implement the findings from this over the next 12-18 months.

The work of the Pensions Dishonesty Unit (see Pensions Bulletin 2023/01 for an example of its work) is also highlighted with TPO stating that it will be working to secure Ministerial approval for further funding for this work after the current funding ends in March 2025.

TPO also notes that its caseload is becoming ever more complex, and it has been held back by a shortage of specialist pensions expertise over the last two years, exacerbated by challenges in recruiting and retaining experienced pensions staff through fixed-term contracts as required by TPO’s funding model.