This month in pensions: An active M&A market and a range of regulatory reforms make it a busy time for the sector

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By Gareth Jones

As we reach the mid-point of the year, many of us are looking forward to – all being well – the final restrictions being lifted and planning for the post-Covid recovery. For the pensions industry, this is likely to mean a busy few months with the changing public policy and business environment creating new opportunities and challenges.

As the economy continues to open up, we have seen considerable amount of corporate activity in the past month with M&A transactions, divestments and corporate restructuring – many of which can place uncertainty on company pension schemes. The increasing role of private equity and activist investors in the past few months has raised concerns in some quarters about how pension schemes would be treated, with former Pensions Minister, Baroness Altmann, stressing that, “It’s really important that Government and businesses are on the lookout for pandemic plunderers.” This time of year also represents peak annual report season, so we will be getting a clearer picture of the company pension schemes and the full impact that the pandemic has had on funding levels, assets and liabilities. Some pension schemes saw their deficits rise considerably last year, although recent figures show a slight improvement in pension funding levels.

The public policy and regulatory reforms to the DB and DC pensions market continues apace, with the prospect of more and more requirements placed on pension trustees, administrators and fund managers. In the past month, the government set out its legislative agenda for the year ahead in the Queen’s Speech. Unlike the previous parliamentary session, there was no dedicated pensions bill announced this time around, but there are a few areas of legislation which are likely to have a significant effect on the pensions market, most notably the draft online safety bill, which is set to tackle the issue of online scams – of which, pension scams are a major component. The announcement of this draft bill coincided with a government consultation on new proposals to tackle pension scams. The proposals largely focus on placing the responsibility on trustees to identify suspicious looking transfer requests and, if appropriate, block them from happening.

Elsewhere, The Pensions Regulator is consulting on its new powers on how apply new Contribution Notice tests (which could define what circumstances the Regulator will force employers to plug pension deficits). On the investment side, The Pensions Regulator have provided further information on what they regard as liquidity risk, noting that in their new code, no more than a fifth of scheme investments should be held in assets not traded on regulated markets. Perhaps the most high-profile issue, however, remains the upcoming rules on climate risk reporting, which come into force in this October for large pension schemes. The Pensions Minister, Guy Opperman, wrote a strongly worded article, stressing that trustees should be addressing climate change and indicated that he would bring in further regulations if this was not being addressed. The tone and urgency of the article perhaps suggests that not all pension schemes have made sufficient progress on TCFD reporting. Final regulations on TCFD are expected to be published in the next few weeks. With COP26 less than six months away, the role of pension funds in addressing climate change is now under increasing scrutiny. COP26 President Alok Sharma delivered a speech at the first Net Zero Pensions summit yesterday, on the importance of ensuring pension funds were being invested in a green future.

While DB pensions have seen a number of legislative and policy developments this year – more attention has turned to the DC market in the past month or so, with a particular focus on helping younger savers. The FCA and The Pensions Regulator are considering a review on ‘improving the consumer pensions journey’ and looking at limiting fees and charges applied to DC pension pots. Finally, the Pensions Dashboards Programme is looking at the logistical issues on how the programme will connect different pension providers, ahead of its proposed 2023 launch.