The Pensions Regulator’s response to schemes not publishing newly required statements of investment principles has been lambasted by the non-profit that first uncovered the extent of non-compliance.
Criticism was levelled against the watchdog by the UK Sustainable Investment and Finance Association, a non-governmental organisation that seeks to promote sustainable and responsible financial services. In response, the regulator has unveiled a key change to trustees’ scheme returns, requiring TPR to be supplied with a link to SIPs.
A February report by UKSIF found that few defined contribution schemes had even published their statements, which must now include policies on environmental, social and governance risks by the October deadline.
It’s as vague as the SIPs we read. I may jump over an elephant ‘where appropriate’
Ben Nelmes, UK Sustainable Investment and Finance
Two-thirds of schemes were in breach as of mid-November, prompting a public request by the Department for Work and Pensions for the regulator to set out its policy on climate change, while the watchdog was forced to defendaccusations that it is a laggard among its peers.
Minister’s concern over SIPs
Further correspondence seen by Pensions Expert revealed that minister for pensions and financial inclusion Guy Opperman was “very concerned” by the findings, and that the regulator is “working on our strategy for dealing with the financial risks arising from climate change”.
In a letter from TPR chief executive Charles Counsell to DWP director of private pensions and arm’s length bodies partnership Pete Searle, the regulator outlined its policy of focusing on setting standards for master trusts and other large schemes where it has direct supervision, while taking a “compliance with the basics” approach to the wider DC universe.
“We will contact schemes where there are failings, and this is the approach we may take in the light of the UKSIF report and we will consider enforcement action where appropriate,” Mr Counsell wrote.
“Where schemes appear unwilling or unable to comply with these types of governance requirements, we will encourage them to consolidate into larger schemes such as master trusts where governance will be more effective.”
NGO hits out at response
However, the response has been branded inadequate and non-committal by UKSIF.
“It’s as vague as the SIPs we read. I may jump over an elephant ‘where appropriate’,” said Ben Nelmes, head of public policy at the body.
He said the regulator appeared to have “no idea which schemes have published the SIP” other than those tracked and recorded by UKSIF in its report, due to its lack of central repository for collecting and publishing statements.
A registry for this purpose was suggested in an amendment to the pension schemes bill moved on Wednesday by former pensions minister Ros Altmann, but was deemed unnecessary by the government since “officials at the DWP and TPR have already begun work to identify how a central index of SIPs can be produced”.
Mr Nelmes welcomed the proposals, arguing that any solution that does not cover the whole sector will allow opacity to continue.
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“They should do a thematic review, which is in their powers,” he said. “If they’re just going to write to a list of so many schemes, well what about the ones that weren’t in our sample?
“The challenge that I think we highlighted in our report is that there needs to be this step change in trustees’ knowledge and understanding of these issues,” he said, adding that allowing schemes to escape scrutiny would be “a big impediment to that changing”.
Responding to the criticisms, a spokesperson for the regulator revealed that planning is now under way for a system to collect and scrutinise these statements, with trustees facing a key update to their scheme returns.
“We have been considering how we will test compliance and have decided to do this by updating the scheme return for DB and DC schemes to ask for the web addresses of where their SIPs are located. This will be a helpful step forward when it comes to checking compliance with ESG regulations,” the spokesperson said.
“We look forward to working with DWP so that the government can update parliament further on the development of a central index of SIPs, at the report stage of the pension schemes bill.”
