Pensions: February Monthly Overview

By Sara Neidle

Another busy month in pensions.

In March, we will see the Chancellor deliver his Budget, which could have important implications for the pensions sector. It promises to be a significant statement from the government, as it attempts to rebuild its credibility with the markets and the public after the turmoil of last Autumn. There have been rumours that the government will use this opportunity to bring forward the increase in state pension age from 66 to 68. There has also been speculation that Jeremy Hunt will use this as an opportunity to help pensions savers. This is, in part, driven by the fact that the fiscal outlook is slightly better than expected (the Institute for Fiscal Studies has estimated that public finances are better off by £30 billion compared to last Autumn) and that the Chancellor has himself indicated that he will do more to encourage over 50s back into work. This has led some to call for the extension of the lifetime allowance. As ever with the Budget, we are unlikely to know for sure until the day itself.

In the news, SEC Newgate data shows that State Pensions saw the greatest number of mentions in February with over 400 stories, closely followed by ESG & Net Zero and Liability Driven Investing (LDI). Martin Lewis, personal finance guru has been issuing a warning to people over state pensions, calling on people to check if they have any gaps in their national insurance contributions in order to receive a full state pension allowance. This has created a great deal of chatter on social channels and online.

This month’s biggest news across the pensions industry included 2020 Trustees and Punter Southall Governance Services (PSGS), announcing they would merge to form a new business Vidett. There also continues to be a number of large buy-in and buyout deals including the largest ever transaction from pension schemes to insurer, a £6.5bn deal with the trustees of two schemes sponsored by RSA Group, buy-in with Pension Insurance Corporation (PIC). In the Financial Times, PIC chief executive Tracy Blackwell explained how “the crisis in September . . . it hasn’t paused this market, it has accelerated this market,”. As a result, schemes are finding themselves suddenly in “a much better funding position, where finance directors are more keen than ever to shift pensions risk off their balance sheet.”

As shown from our data, the dust is still settling on last year’s LDI debacle, when the UK’s £1.5trn defined benefit pension system seemed to be in a meltdown triggered by September’s “mini”-Budget. The Banks, the Pensions Regulator, the FCA and the Treasury are all trying to figure out exactly what happened, and make sure it doesn’t happen again.

This month, Chair of the Industry and Regulators Committee Lord Hollick wrote to Economic Secretary to the Treasury Andrew Griffith MP and Pensions Minister Lara Trott MP about a number of recommendations to improve regulation over use of liability-drive investment (LDI) strategies by defined benefit (DB) pension funds. He wrote that the main driver of the increasing use of LDI by DB pension schemes are due to changes in accounting standards, which have ‘introduced a sense of short-termism to what should be long-term investment strategies’. He recommended that the Government and the UK Endorsement Board review current accounting standards and shared that the Lords will continue to work with regulatory partners to monitor compliance with the minimum standards set. 

We also saw the Bank of England confirms plans for steady state response following gilt market volatility. Executive director Sarah Breeden give evidence before the DWP committee. declaring that the BoE was working with TPR and fund regulators to devise an ‘appropriate steady-state response’. Outcomes of discussions are to be expected ‘around the second half of March’. Their process is to describe how to reduce risk to financial stability, with a priority on avoiding systemic risk. She said ‘I don’t think that [LDI strategies] need to be banned outright. We set out the outcomes of what well managed leverage in an LDI strategy requires’.  

Lastly, ESG and Net Zero remain key areas of interest. This month, we began to gain a better focus of this year’s COP28 Conference in Dubai. Speaking at the World Government Summit in Dubai, the COP28 President, Sultan al-Jaber, said: “I will lay out a roadmap for COP28 that is inclusive, results-oriented and far from business as usual.” The last COP did not deliver much in terms of carbon emission cuts, the need for this year’s conference to make progress is significant. To read more about our current take on COP28 and the key events in the run up to the Conference, read our ‘Road to COP28’ brochure.

If you would like any specific communications advice relating to any of these issues, get in touch with us pensions@secnewgate.co.uk