Pensions Bulletin 2024/40

Pensions Minister gets behind pensions dashboard roll out

Pensions Minister Emma Reynolds has explained the new Government’s commitment to the delivery of pensions dashboards to the timetable set before the General Election in a written ministerial statement made to the House of Commons on 22 October 2024.

She reported that the necessary formal reset process has recently been concluded by the Pensions Dashboards Programme, as a result of which the Infrastructure and Projects Authority has increased its confidence in the PDP’s ability to deliver against their revised plan.

She said that although it is too early to confirm a launch date for public use, she has directed the PDP to focus its efforts on the connection and launch of the MoneyHelper dashboard service (provided by MaPS), before turning to the work of connecting commercial dashboard services.  She also said that although the Government supports the principle of enabling multiple commercial pensions dashboard services, there will be a period while only the MoneyHelper dashboard is operational.

In wrapping up her statement she said that it is essential that the pensions industry continues to prepare for connection, having regard to the timetable set out in the Department for Work and Pensions’ guidance.

Transition Finance Market Review published

The independent Transition Finance Market Review, led by Vanessa Havard-Williams and commissioned by the last Government following the announcement in the 2023 Green Finance Strategy (see Pensions Bulletin 2023/14), has been published.

The purpose of the review is to consider what the UK financial and professional services ecosystem needs to do to become a leading hub for, and provider of, transition financial services, by facilitating UK and international companies and investors to invest to align with credible net zero pathways.

The review defines transition finance as “in the broadest sense incorporates the financial flows, products and services that facilitate an economy-wide transition to net zero consistent with the Paris Agreement”. It recognises the key barriers to accessing and deploying transition finance in the UK include:

• the lack of long term regulatory and policy certainty with regard to real economy transition;
• mismatch in the risk-return profile required by capital providers and the investible opportunities;
• challenges with assessing whether financing a particular activity or entity will have a credible decarbonisation impact;
• limited provision for transition activities and strategies in the sustainable finance regulatory regimes; and
• the risk of actual and alleged greenwashing and reputational damage.

The report makes 15 recommendations to address these issues, centred around 3 core pillars – establishing clarity and credibility for transition finance, scaling finance for transition activities, and scaling finance for transitioning entities. It recommends a whole-of-economy approach to emissions reduction is the primary objective of transition finance but proposes that high-emitting companies and sectors will need particular focus in the near term, whereas the market for commercial climate solutions companies and activities (such as wind, solar) is more mature with existing market infrastructure and requires less emphasis at this stage. It calls for policy certainty and sector decarbonisation pathways and recommends the Government should communicate with the industry and financial institutions on its policy, regulatory and funding initiatives.

The report puts forward a Transition Finance Classification System and a set of Guidelines for Credible Transition Finance, both helping to identify what could be considered as “transition finance”.

The report recommends that the Government should move forward with mandatory transition plans via a consultation, and publish a forward-looking roadmap, outlining how and when it will implement transition plan disclosure requirements for the largest companies and financial institutions. It also considers unlocking productive finance and recommends that the Treasury and the Department for Work and Pensions should address any initial implementation challenges and work through any wider regulatory barriers that prevent DC schemes from increasing their allocations to transition finance.

The review suggests that many of the recommendations should be delivered over the next six months to three years.

Three key governance bodies have also been suggested:

• a re-established Net Zero Council to develop granular real-economy sector decarbonisation pathways;
• a new Transition Finance Lab to focus on developing innovative financing structures in response to specific sectoral financing challenges; and
• a Transition Finance Council to act as an accountability mechanism for this Review’s recommendations, support transition finance capacity building and communication in the UK and promote interoperability with other markets.  

Nest scheme annual report 2023/24 published

The Nest pension scheme’s annual report and accounts for 2023/24 has become available on Nest’s website. It has been published to a similar timescale to last year’s (see Pensions Bulletin 2023/39), ie some six months after the end of the scheme year and so within the seven month statutory deadline and again, without an accompanying press release.

Over this latest reporting period, Nest’s contributing membership has stayed steady at 3.8m, but its non-contributing membership has grown again, from 8.2m to 9.2m.

Annual total contributions grew from £6.5bn to £7.3bn whilst assets under management grew from £29.6 billion to £40.6 billion.

The report states that over the past year, Nest has explored two new asset classes, namely timberland and thematic equities (actively investing based on themes such as climate change mitigation, natural capital and key social issues). It also mentions Nest’s investment in the UK, reporting that £8.3bn, or 20% of its total net assets are so invested – and highlighting its UK investments in, amongst other places, Forth Ports, Hornsea 1 Windfarm and Pingewood Solar farm.

The Nest Corporation’s annual report and accounts is separate from the Nest scheme’s and, based on last year, we can expect to see this for 2023/24 in the next few weeks. This should show the current status of the Government’s loan to Nest.

Pensions Regulator announces two new initiatives

On 18 October 2024 the Pensions Regulator published a blog from its Chief Executive Nausicaa Delfas, in which she set out two new regulatory approaches “that go to the heart” of the Regulator’s ambition to be “more market-facing and outcome-focused”.

The first concerns professional trustee firms on which she promises that before Christmas the Regulator will be establishing relationships with the 10 largest trustee firms to understand good practice and identify risks in areas such as ownership structure, skills and experience, DEI, conflicts of interests, and fees. She points to the latest LCP Sole Mates survey which reveals that five professional trustee firms account for 90% of the DB professional trustee market when measured as DB assets under management.

The second concerns the launch of an “innovation hub” along with an innovation design team to help the pensions industry “test new models and approaches from a regulatory standpoint”. There is also the promise to “provide guardrails for industry” so that innovation can proceed but with members’ interests “front and centre, and safely”.

Pensions Regulator publishes its digital, data and technology strategy

On 22 October 2024 the Pensions Regulator published its digital, data and technology strategy, which it says is a blueprint for how it and the pensions industry should adapt to and embrace evolving technology and a changing pensions market to drive better saver outcomes.

The strategy has three aims – to reduce unnecessary burdens on pension schemes; to enable effective market competition; and to help the Regulator innovate and create an environment which encourages pension schemes to do the same in savers’ interests. The last of these seems to be linked to the announcement in the article above, with the strategy document saying that a Regulatory Sandbox is to be created along with “new engagement approaches and pathways that will serve to accelerate innovation”.

On the strategy as a whole the Regulator says that it will establish an industry working group to agree further detail, including a focus on data and the common standards needed.