The Department for Work and Pensions (DWP) is planning this autumn to turn into law most recomendations of an order produced by the Competition and Markets Authority (CMA) that addresses provision of investment consultancy (IC) and fiduciary management (FM) services to pension schemes.
The decision, which had already been delayed by more than two years, folllows an investigation by CMA into the investment consultants market started in late 2018.
The DWP’s response to the CMA’s consultation has stated that the CMA’s recommendations – trustees setting objectives for investment consultants and the mandatory competitive tendering on first adoption of fiduciary management or the continuation of historic untendered fiduciary management – are a “positive step for improving ongoing trustee engagement and likely to lead to consequential improvements in the value for money of IC/FM services”.
It added: “We therefore proposed to largely replicate, with some minor alterations based on slight policy differences, the relevant parts of the CMA’s Order in our legislation, along with the monitoring and compliance requirements to allow TPR to act as the regulator in relation to these duties.”
DWP’s consultation and draft regulations proposed not to exclude public service pension schemes (PSPSs) defined by the Pensions Act 2004, but instead limit scope to schemes with trustees. As PSPSs established under the 2004 Act are statutory schemes, they do not have trustees. Additionally, DWP’s regulations exclude all schemes that meet the PSPSs definition in the Pension Schemes Act 1993.
The government also agreed that “it would be impractical” to expect scheme trustees to carry out a competitive tender for fiduciary managment services when they would have a clear and legitimate preference to use the services of the sponsoring employer.
“However, we believed it was reasonable for the trustee to set their IC objectives and monitor performance against them, regardless of whether the IC is connected with the sponsoring employer of the scheme. This is because the member could still potentially suffer detriment if this is not done,” DWP said.
DWP noted that, subject to parliamentary approval, the regulations will come into force on 1 October 2022. “This is a delay from our original coming into force date proposed at consultation. This is as a result of reprioritisation brought on by the onset of the COVID-19 pandemic,” it added.
FTSE100 companies see pension surplus ten-fold
FTSE100 pensions surplus has grown from £10bn at the start of 2021, to £59bn at the year-end, and is currently over £100bn, according to consultancy LCP’s latest Accounting for Pensions report.
This is in spite of volatile markets, and means that, for the first time in 20 years, many more companies will now have to focus attention on how to manage this pensions surplus.
In addition, LCP’s analysis revealed that FTSE100 companies are sitting on up to an additional £10bn of pension “hidden” surplus due to the long-term impact of the pandemic on life expectancy which could result in up to a 2% fall in liabilities.
This is ”hidden” because many companies are not currently recognising this impact within their corporate accounts. “This year, we expect to see an increase in the number of companies making such an allowance, further improving the aggregate position,” the firm said.
Current high levels of inflation, as well as increases in expectations for future inflation levels, have increased pension liabilities for the FTSE100 by £40bn. However, pension scheme assets will likely offset this increase to an extent and dampen the impact on corporate balance sheets.
Indeed, many schemes will have seen assets rise more than their liabilities due to the caps on pension increases.
Jonathan Griffith, partner at LCP and author of the report, said: “At first glance, the takeaway from this year’s report is that this is job done and FTSE100 pension schemes are now an asset for UK Plc. Whilst it’s clearly good news that more schemes are now in surplus, with rising inflation, a potential recession and a new funding code on the horizon, scheme sponsors need to make sure that they understand how much of a surplus they really have, how to manage it, and think about how they best buffer their schemes against the headwinds to come.”
LPFA launches transparency dashboard
The London Pension Fund Authority (LPFA) has today announced the launch of its new ‘transparency dashboard’ in partnership with impact-focused FinTech Tumelo.
The dashboard, which is integrated directly into the LPFA’s corporate website, displays a breakdown of the £6.9bn (€8.2bn) fund’s equity investments including the individual company names, logos, and biographies, enabling both members and the wider public to learn more about where LPFA’s equity investments are being held.
The Auhtority is one of the first defined benefit and Local Government Pension Scheme (LGPS) fund to use Tumelo’s transparency solution. Equities represent around 45% of the LPFA’s total portfolio, it added.
The launch of the LPFA’s transparency dashboard comes as a direct response to member queries and the LPFA’s 2021 Fund Member Survey which found that many of the LPFA’s 93,000 members wanted more information about how the scheme is invested and how it invests responsibly.
The dashboard, updated quarterly, will allow LPFA members to check on the fund’s equity investments.
Robert Branagh, LPFA’s chief executive officer, said: “How we invest impacts the future of our economy, our environment, our society and therefore our members’ future. Transparency around how our fund is allocated – particularly within the pooled environment of the LGPS – is important in helping all of us understand how our pensions, our world and our society is interlinked. It’s also important that funds making net zero commitments can demonstrate evidence of their transition to a low carbon future. Transparency around our equity holdings is a first step.”
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