Many smaller defined contribution (DC) pension schemes in the UK are failing to meet expectations on assessing value which proves to be detrimental to investors, according to a survey conducted by The Pensions Regulator (TPR).
The DC schemes survey, which was published last week, showed a lack of awareness from small schemes around new value for members’ assessments, and that smaller schemes were less likely to act on financial risks caused by climate change than larger ones.
Only around a quarter (24%) of DC schemes met TPR’s key governance requirement to assess the extent to which member-borne charges and transaction costs provide good value, with larger schemes, such as master trusts, more likely to meet it.
As larger schemes were more likely to assess value against costs and charges than smaller ones, only 11% of members were in schemes that failed to meet the regulator’s expectations.
The survey also explored how aware schemes with less than £100m of assets under management (AUM) were of requirements to carry out a more prescriptive value-for-members assessment from the first scheme year that ends after 31 December 2021.
Of the 208 schemes with under £100m AUM that were quizzed on their awareness of the assessment requirement, 64% reported they were unaware of it. Smaller schemes were more likely to be unaware of the requirements, with 58% of small and 70% of micro schemes unaware, compared with 15% of large schemes and 23% of medium schemes.
As in 2021, action on climate change governance and reporting was widespread among large schemes and master trusts, but few small and micro schemes had devoted time or resources to it.
Every master trust and 86% large schemes had allocated time or resources to assessing any financial risks and opportunities associated with climate change. This fell to around half of medium schemes (48%) and fewer than one in 10 small (4%) and micro (8%) schemes.
All schemes are exposed to some degree of climate-related risk and opportunities and all trustees should allocate the appropriate amount of time and resources assessing this, the research stated.
Border to Coast sets up engagement programme
Investment pool Border to Coast Pensions Partnership has set up an engagement programme on just transition – the integration of social risks and opportunities into decarbonisation strategies, enabling investors to address systemic threats to long-term stability and value creation, and supporting the delivery of a rapid and resilient transition to net zero.
Border to Coast – which is responsible for approximately £50bn of assets on behalf of its 11 local government pension schemes funds – has included three strands in its new just transition engagement programme:
- piloting engagement with an emerging-market energy utility;
- joining other institutional investors in the Financing a Just Transition Alliance (FJTA), co-ordinated by the London School of Economics Grantham Institute;
- joining Royal London Asset Management to engage UK banks.
Colin Baines, stewardship manager at Border to Coast, said: “For institutional investors, contributing to a just transition offers a way of reducing systemic risks, realising fiduciary duties, identifying material value drivers, and generating positive social impacts.
“Our new value-adding engagement will offer support to companies, including high-level sector expectations, best practice case studies, and expert feedback on policy drafts. By integrating just transition, we hope to avoid stranded communities, workers and customers, as well as stranded assets.”
Risk-sharing could provide an age-old solution, says Hymans Robertson
Innovative thinking must be urgently embraced by the DC market if members are to receive the income they need in retirement, Hymans Robertson stated in its latest report – Risk sharing: an age old solution to an age old problem.
The report disclosed that greater innovation in the options offered by providers and financial advisers to pension savers could increase their retirement income by 20%. This would be a lifeline for the majority reaching retirement with less savings than required for a decent standard of living, it added.
Jon Hatchett, senior partner at Hymans Robertson, said: “The [Pensions and Lifetime Savings Association] PLSA’s Retirement Living Standards maintain that a moderate standard of living in retirement will cost about £23k per annum, a target that is currently out of reach for most. This is far from ideal.
“Members will be simply losing out on the chance of increased income in retirement by the industry’s inertia and resistance to change the ways in which DC pension are accessed.”
Hatchett noted that UK retirees are ever more reliant on DC pensions. However, “this income will be insufficient as they haven’t saved enough, and are unlikely to be able to, even if they increase their contributions now”.
“It might be too late for those in their 50s and 60s to save enough, but not too late for the industry to help,” he continued, adding that risk-sharing can allow savers much better ways to manage the uncertainty of how long they will live, and for those that choose to prioritise spending while they are alive, increase their income in retirement by around 20%.
He said this solution will create a “gateway for millions of struggling people to have a safe and secure future with little to worry about the seemingly impending doom the cost-of-living crisis imposes”.
Impact Cubed launches SDG dataset
ESG data and analytics firm Impact Cubed has launched a Sustainable Development Goals (SDG) dataset. This unique tool provides a quantitative, objective, and factual way for investors to assess SDG alignment across portfolios and individual securities globally, it was announced.
The SDG dataset addresses the challenge of companies’ inconsistent and biased SDG disclosures, offering a more reliable alternative to qualitative SDG data.
It provides three distinct views: products and services revenue alignment, operational alignment, and combined revenue and operations alignment.
A key feature of Impact Cubed’s solution is the incorporation of geo-revenue data. This allows investors to see not just what a company does, but where it does it, enabling a more nuanced understanding of impact.
“We’re just scratching the surface of what’s possible with our SDG data,” said Chris Lee, head of marketing at Impact Cubed. “Our portfolio construction team is already using this new dataset to create bespoke SDG-optimised portfolios using our recently launched Smart ESG tool.”