The London Pensions Fund Authority (LPFA) has removed its last extractive fossil fuel holdings from its global equity portfolio, which makes up 46% of the fund’s £6.9bn (€8.2bn) total.
The announcement comes shortly after the fund’s net zero commitment last September and marks another step in the gradual reduction in LPFA’s exposure to traditional energy holdings since the fund introduced a specific climate change policy in 2017.
Local Pensions Partnership Investments (LPPI), the asset management firm that undertakes the day-to-day management of LPFA’s assets, took the step in December 2021 to exclude extractive fossil fuel companies from its LPPI Global Equities Fund in which the LPFA is invested.
The decision to exclude extractive fossil fuels from its portfolio, it said, stems in part from LPPI’s own net zero commitment when on 1 November 2021, the firm became a signatory to the Institutional Investors Group on Climate Change’s (IIGCC) Net Zero Asset Manager Commitment.
LPFA stated that while all companies are likely to be impacted by climate change, some sectors face greater risks due to their emissions intensity or involvement in traditional energy production based on fossil fuels.
“These will need to be significantly curtailed to meet global emissions reduction targets and so pose a financial risk to the LPFA fund,” it added.
In 2019, LPPI took the decision to cease investing in thermal coal extraction by progressively divesting existing holdings and placing an exclusion on further investments in this sector.
Robert Branagh, LPFA’s chief executive officer, said: “Engagement remains the primary approach to driving change, but we will and do disinvest where necessary. While these recent actions are taken to mitigate the financial risk that climate change poses to the fund, we know that they will be welcomed by our members who are increasingly keen on seeing the LPFA play a leading role in tackling climate change.”
Consultants foresee ‘significant’ growth for professional corporate sole trusteeship
The pensions industry can expect to see “significant growth” in the demand for professional corporate sole trustee (PCST) appointments during 2022, according to the first report on the rise of the PCST model from Ross Trustees.
The report’s findings draw on research carried out among 13 major consultancy firms that collectively advise a significant majority of UK pension schemes.
It uncovers a unanimous view that the PCST market will continue to grow in 2022, with three quarters (76%) of consultancies believing that wider adoption of sole trusteeship is having a positive effect on the pensions industry. This includes 15% that believe this impact has been “very positive”.
With this in mind, two in five (38%) consultancies are anticipating “significant growth” in PCST appointments over the next 12 months, the report revealed.
Almost two in three advisory firms (62%) identified pension schemes with up to £100m (€118m) of assets under management as the primary source of PCST appointments. One in three (31%) are busiest supporting schemes of between £100m and £499m.
Ross Trustees’ research also examined the key motivations driving pension schemes to consider appointing a professional corporate sole trustee. While appointing a PCST will not suit all schemes and their stakeholders, the report named three key attributes that lead some scheme sponsors to adopt this governance model:
- The majority of consultancies (62%) cite the speed and efficiency of decision-making as the strongest attraction to pension schemes;
- One in three (31%) feel the decisive factor behind PCST appointments is the ability to adapt to growing governance requirements for trustees, resulting from ongoing regulatory changes;
- The need for specialist skills to deliver risk transfer projects, such as longevity swaps, was also cited by one firm.
Shehzad Ahmad, trustee director at Ross Trustees, said: “Our ﬁndings show a broad endorsement of the PCST model in the right conditions, and we echo the view that its wider adoption is having a positive impact on the pensions industry.”
He said that issues such as financial volatility, regulatory scrutiny, stringent legislation and sponsor distress will likely play a continuing role in prompting plan sponsors to assess how their trustee model supports the effective governance of their pension schemes.
Master trust warns of costly mandatory single charging structure
The People’s Pension, one the UK’s largest workplace pension schemes, said it could miss out on millions of pounds, with many individual savers potentially losing thousands from their pension pots, if the government bans auto-enrolment pension providers from using combination charging structures.
The scheme’s warning comes ahead of anticipated proposals by the Department for Work and Pensions (DWP) which could see all auto-enrolment pension providers forced to introduce a single, flat annual management charging structure.
B&CE, the provider of The People’s Pension catering for more than five million workers across the UK, uses a combination charging structure to give money back to its members the more they save.
Its charging structure consists of three components:
- an annual charge of £2.50 – equivalent to 21p a month;
- a management charge of 0.5% of the value of a member’s pension pot each year;
- a rebate on the management charge, giving back between 0.1% on savings over £3,000 and 0.3% on savings over £50,000.
Already, The People’s Pension gives more than a million pounds back to its members every month, it said.
As automatic enrolment matures, the number of people benefiting from the rebate on the management charge will grow considerably as will the amount given back, with its total membership projected, based on current calculations, to receive around £34.5m a year in just five years’ time.
Based on the current combination charging structure, the average earner, saving over their working life with The People’s Pension, could see their lifetime annual management charge eventually fall by more than half to just 0.23%.
But if the government makes this anticipated move, The People’s Pension has warned that a saver like this, could potentially lose out on almost £27,000 – around an additional three years’ retirement income.
It has also warned that implementing a universal charging structure only for automatic enrolment pension providers could distort the market, put millions of people saving through auto-enrolment at a disadvantage, and cause pension providers to increase their charges for all members.
Patrick Heath-Lay, chief executive officer of B&CE, said: “We believe that banning combination charging structures like ours would be a backwards step as it will remove incentives for saving more towards retirement and will unfairly target savers in workplace pension schemes.”
Cushon buys Better with Money
Cushon, the fintech pension and savings provider, has bought financial education specialist Better with Money, allowing Cushon to extend its existing proposition of financial education for the workplace.
Cushon currently delivers financial education to employees of its clients, which together with its mobile app and automated investment monitoring service CushonMe, delivers a digital end-to-end financial wellbeing solution.
“Better with Money works with employers around the country to provide their staff with financial education solutions including webinars, 1-2-1 money guidance sessions and podcasts, so that people can be less stressed about money and therefore happier and more productive at work,” it was announced.
It has a regional team of trainers and delivers financial education to more than 40 employers, including Channel 4, Ferrero and the Financial Ombudsman Service.