The new UK Pension Schemes Bill’s approach to responsible investment has been met with mixed responses from industry leaders who have said greater clarity and ambition are needed to align pension policy with sustainable investment goals.
The Department for Work and Pensions (DWP) launched the long-awaited UK Pension Schemes Bill in Parliament on 5 June, as part of the government’s significant pension reform agenda. It follows the major consolidation of the UK pension system set out in the Pension Investment Review.
Speaking to IPE, ShareAction said that while the Bill is a major milestone, it misses the chance to clarify fiduciary duty, especially regarding consideration of long-term impacts and members’ broader wellbeing.
“The Pension Schemes Bill is a defining moment in pensions policy and shaping the future for UK pension savers; however, as it stands, it is a missed opportunity to clarify fiduciary duty,” said Claire Brinn, senior UK policy manager at ShareAction.
Earlier this year, ShareAction proposed amendments to reform fiduciary duty law for the UK pension sector.
At LCP, however, Claire Jones, partner in the responsible investment team, said the Bill had few explicit mentions of sustainable investment, “[b]ut that’s not to say the announcements weren’t important for sustainability”.
In a Linked In post, she said several announcements supported one of the consultancy’s climate policy asks, namely that it should be easier for pension funds to invest in climate solutions – including growth and/or illiquid assets. These included the measure to make it easier for defined benefit (DB) schemes to release surplus as they are more likely to run on and invest in growth assets
She also said that under the Mansion House Accord, many large defined contribuion (DC) providers and master trusts are targeting increased UK pension investment into private markets, potentially including climate solutions.
Value for money and consolidation
The Bill will also introduce a Value for Money (VfM) framework to enable a shift in focus from cost towards value and protect savers from becoming stuck in underperforming arrangements for extended periods.
UK Sustainable Investment and Finance Association (UKSIF) has welcomed measures supporting the consolidation of small pension pots and the development of a VfM framework, adding that they also support proposals to unlock surplus capital from DB schemes to potentially channel investment into net-zero aligned assets.
In her post, Jones said that a greater focus on value, rather than cost, “for DC could increase the willingness to invest in sustainable options even if the management charges are higher (eg illiquid assets, actively managed funds)”.
Furthermore, Jones noted that consolidation would help address the “fragmented nature of pension scheme influence with investee companies, policymakers and other actors in the investment chain”, albeit in the short-term it may divert resource away from sustainable investment as schemes focus on structural changes.
“There’s also a risk that, as schemes consolidate, we lose some of the innovators who have been driving developments in sustainability best practice,” she wrote.
Jones said that it was “important to remember that these changes are only enablers of sustainable investing”. She said: “The key question is whether we’ll see the cultural shifts needed to drive uptake of sustainable investments such as climate solutions.”
The latest digital edition of IPE’s magazine is now available
No comments yet