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UK roundup: House of Lords, JLT, National Institute for Economic and Social Relations

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  • UK roundup: House of Lords, JLT, National Institute for Economic and Social Relations

UK - The House of Lords has criticised pension funds for attempting to paint environmentally friendly investment as contrary to their duty to safeguard high returns.

Speaking in England's second house regarding a proposed amendment to the 2010 Pensions Bill, which calls for the Department for Work and Pensions to publish concrete guidance on ESG disclosure, Lord German criticised the fact that governance decisions were often left to asset managers, with it being unclear how these would vote.

Lord German, co-chair of the Liberal Democrat party's parliamentary committee on Work and Pensions, said: "Funds often respond as though taking into account an environmental issue, which might be the one being questioned, is in opposition to their fiduciary duty to maximise returns."

He said this attitude betrayed a "continued misunderstanding" of responsible investment issues and how these could be "material" to returns.

German added: "Members increasingly bear the investment risk associated with their pension savings and should have corresponding rights to scrutinise the management of that risk. This is particularly important given the growth of DC schemes."

He acknowledged that the government was already able to provide guidance on such matters and urged it to publish an outline that "describes elements of a best practice statement on social, environment and ethical issues".

The comments come after Lord German called on schemes to act on the spirit of the law when it comes to voting disclosure by allowing easy access to voting records.

Meanwhile, JLT Pension Capital Strategies reports £1.8bn worth of buyouts in the last quarter of 2010.

This means pension schemes spent £8.1bn on the insurance option over the year, with the biggest deal struck between German car manufacturer BMW and Abbey Life.

Tiziana Perrella, head of buyout services at the company, said that a "frantic" fourth quarter resulted in a good year for buyouts.

"There remains a clear desire from sponsors for schemes to reduce risk, with buyouts being the ultimate aim," she said. "Insurers are continuing to adapt to the requirements of schemes, developing intermediate solutions to enable full buyouts to become attainable over time."

Perrella said insurers indicated that the trend would continue, although many pension schemes will be unable to complete full buyouts in the coming year, and estimated that the market would be worth £10bn over the next 12 months.

Finally, a UK think tank has suggested that a 6% increase in taxes will be needed to continue current pension payments, as the country faces increasing longevity.

The report by the National Institute for Economic and Social Relations aimed to calculate the needs facing generational accounts - those covering pension and health payments - and based its estimates on the government's 2010 budget.

The report states: "Our base simulation, with a real interest rate of 3% [a year] suggests taxes need to rise by 15.4% to deliver intergenerational budget balance and by 17.1% to deliver intertemporal budget balance."

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