Pensions minister Guy Opperman has lauded the government’s “utterly transformational” approach to climate reporting requirements, while promising legislation on “simpler statements” and the “statements season” in the near future.
Speaking at the Pensions and Lifetime Savings Association’s annual conference, Opperman reiterated the government’s belief that transitioning to a “net-zero” economy is essential in order to stop the world losing “entire countries” to climate change “within a century”.
“To avoid such a scenario, economies around the globe must be in a position to transfer to a net zero economy,” he said. “This presents a major systemic financial risk and a threat to the long-term sustainability of UK private pensions.”
These measures are utterly transformational. Never before have trustees been required to show how climate change will affect their portfolio. They are being publicly held to account for their decisions
Guy Opperman, pensions minister
Opperman hailed the “groundbreaking” regulations introduced by the Department for Work and Pensions, making the UK “the first country in which trustees must consider, assess and report on the financial risks of climate change within their portfolios by 2022”.
These requirements will at first be mandatory for all occupational pension schemes with more than £1bn in assets.
“These measures are utterly transformational. Never before [have] trustees been required to show how climate change will affect their portfolio. They are being publicly held to account for [their] decisions,” he said.
He also stressed the importance of stewardship: “Schemes can have a voice if they remain invested through equity mandates. They also can choose to stop lending money to companies not addressing climate risks.
“I cannot overstate how important I believe that stewardship will be in this industry's response to the climate crisis.”
Simples
Moving on to other matters, Opperman said that auto-enrolment had been a “game-changer” and “transformational”, especially for women and girls.
“The stats speak for themselves. In 2020, people contributing to a workplace pension included 86 per cent of women, 79 per cent of low earners and 84 per cent of young people,” he said, but he added that there is “still more to do”.
“Removing the lower earnings limit will proportionately benefit the lowest earners most, and extending eligibility to age 18 will support our youngest workers to start saving for more secure retirement,” he said.
In order to boost member awareness and ensure people engage properly with their workplace pensions, Opperman said the government will “shortly […] be laying the regulations for simple annual benefits statements”.
“Simpler statements, in my view, will usher in a new standard for our schemes to communicate with our members,” he said, while a “statements season”, for which he also intends to legislate, “will maximise the impact of simpler statements and will stimulate greater debate among the public”.
The DWP set up a working group in August to look into the introduction of a statements season, though experts including the Pensions Administration Standards Association have since warnedthat it could create “significant difficulties, additional and unnecessary costs, and adverse implications” for schemes and administrators.
However, he said he remained “committed to simplifying the pensions system”.
Build back Boris
Finally, Opperman echoed the prime minister’s belief in the benefits of the government’s “build back better” initiative, but cautioned that this should not translate into higher member charges — though he also said that the industry should focus on other things besides costs.
“Regulations came into force this month that require all schemes to publish the investment performance they’re achieving for members, looking to actively shift the focus of the market from low cost to value for members,” he explained.
Statements season could cause mayhem for admins, PASA warns
On the go: The creation of a statements season could cause “significant difficulties, additional and unnecessary costs, and adverse implications” for schemes and administrators if a route of a common valuation date is chosen, the Pensions Administration Standards Association has warned.
He stressed the importance of consolidation in achieving the level of scale required to open up new investment options for defined contribution schemes in particular, adding that while the government is still evaluating feedback from consultations, “there is no question that consolidation is going to happen”.
In the defined benefit space, Opperman said the government will shortly be launching “a system of DB master trust self certification”, in conjunction with the PLSA.
“This will help raise awareness of the services and benefits of DB master trusts, which will also help DB pension schemes to assess if they’re the right solution for them,” he said.
