The CutRSS

Introducing Pensions Expert's blog – cutting through the industry noise to provide a regular dose of data, regulatory updates and comment on the issues facing UK workplace pension schemes.

ESG: Focus efforts from a risk perspective

Joshua Kendall

From the blog: Every institutional investor should be following a responsible investment approach.

Responsible investment means better managing risk and seeking out more sustainable long-term returns by incorporating a greater number of risk factors, such as environmental, social and governance issues, into investment decisions.

This is fundamentally sensible; ignoring potentially material risks should not be a serious option and may negatively impact performance over the long term as ESG factors become priced by market participants, such as credit rating agencies.

What greater regulatory scrutiny means for small schemes

Vikki Massarano

From the blog: In addition to announcing its new “tougher” stance, the Pensions Regulator has said it will take a more proactive approach to smaller schemes’ compliance with its requirements and expectations.

This followed a survey of defined benefit schemes’ approach to the Pensions Regulator’s DB funding code of practice, showing that while most schemes are currently following the regulator’s standards of governance, smaller schemes are lagging behind.

The regulator has concluded that smaller schemes tend to have poorer governance standards, particularly around assessing trustee fitness and performance, and in relation to taking and managing funding risk.

Patient capital in DC: Worth the risk?

Maria Nazarova-Doyle & Tim Sharp

From the blog: Philip Hammond's desire to increase the allocations of defined contribution schemes to 'patient capital', including high-risk venture capital, have proved a divisive issue in the pensions industry.

DC schemes have long clamoured for access to illiquid assets, but the prospect of watered-down protections on costs and charges have had some up in arms.

Pensions Expert asked JLT Employee Benefits' Maria Nazarova-Doyle and the Trades Union Congress' Tim Sharp for their views on whether greater access to patient capital will be a boon or a burden to DC savers’ retirement outcomes.

ESG investing: the temperature is rising

From the blog: From October next year, trustees will be required to make public their policy on environmental, social and governance considerations, to the extent that these may have a material impact on the financial performance of their scheme's investments.

However, even before this trustees need to consider how they can demonstrate that they are taking ESG investing seriously, as the risks associated with paying lip service to it are increasing.

In the UK, ClientEarth are supporting members who are requesting information about their scheme's approach to ESG matters and are threatening legal action if the response is deemed inadequate.

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In defence of the tax relief status quo

Christopher Stiles

From the blog: Speculation over the future of tax relief on pension contributions never goes away.

The case for reform has been well made by various bodies, but there is a good case for leaving tax relief well alone.

The original purpose of tax relief was simple, and often overlooked in this debate: it is to avoid double taxation.

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Cash flow management is DB's new admin headache

Toby Clark

From the blog: The balance of payments for defined benefit pension schemes has shifted. With estimated active DB members numbering less than 500,000 and more than 5m members in receipt of their pension, most DB schemes have a negative cash flow.

As contribution receipts dwindle and payrolls increase, administrators, trustees and investment consultants are working more closely than ever to ensure cash management policies keep the treasury wheels turning.

Two fundamental starting points to consider are the acceptable level of deposit cash, commonly held at very low-interest rates, and how quickly access to top-ups can be obtained.

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When member engagement should take a knee

Getty Images

From the blog: Pension schemes are under increasing pressure to invest responsibly. On this side of the pond, this discourse largely revolves around environmental and social investment.

But in the US, ethical investing has taken a very different shape at one fund. Last month, a retired police officer called upon the council responsible for New Jersey's public pension fund to review its holdings in sportswear giant Nike.

Marty Barrett, who sits on the board of trustees for the Police and Firemen’s Retirement System of New Jersey, reportedly objected to a Nike advertisement featuring American football star and civil right campaigner Colin Kaepernick.

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Financial wellbeing means stepping beyond pensions

Darren Laverty

From the blog: It is fair to say employers have been thinking about financial wellbeing for years – even before auto-enrolment offered most a workplace pension, and perhaps some other monetary protection benefits, such as life assurance or income protection.

But for many employees, this feeling that they are supported in their financial wellness is at best forgotten, and all too often invisible, soon after the initial orientation into their new job.

Your employee’s financial health has a huge impact on them, and in the long term poor financial health is likely to impact on your business. So, it makes perfect sense to support employees with their financial wellbeing.

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UK gilts: The inconvenient truth for schemes

Barbara Saunders

From the blog: Gilts have been a perennial favourite for UK pension schemes, not simply for their liability-matching properties, but also because of the returns they have delivered for schemes in years when markets have wobbled.

However, what was once a classic trade in times of trouble for risk markets now looks less compelling.

The unfortunate truth is that after years of declining yields (and corresponding gains for investors) the market environment has shifted significantly since the last downturn.

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Trustees must not shirk responsibility on DB transfers

Roy Murphy

From the blog: The Merchant Navy Officers Pension Fund has, in common with many other defined benefit pension schemes, seen a significant increase in transfers out of the fund since the introduction of pensions freedoms introduced three years ago under the then pensions minister, Steve Webb.

In fact, MNOPF saw a 100 per cent increase in transfers out in 2017 compared with 2016.

This trend was brought into sharp focus recently with the revelation that the Pensions Regulator has written to a number of schemes warning about excessive transfer values being paid out in some cases.

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