Pensions Update: Who will be crowned next PM?

By Sara Neidle

Summer holidays have finally arrived. What a start, with England Lionesses being crowned Euro 2022 Champions. The next big event heating up is the Conservative Party leadership race. The question remains who will be crowned next PM? Rishi Sunak and Liz Truss are nose to nose, with the leadership contest running until a Prime Minister is appointed on 5th September.

For the pensions industry, Guy Opperman remains in post as pensions minister, on a caretaker basis. This is good news for the industry, as it will allow more time for him to finish some of the initiatives he already started, rather than cause complete disruption. It’s a wait and see on many fronts, as it is too soon to determine key policy positions from the key candidates, and there is unlikely to be any major new legislation on pensions but may well be on wider financial services. One possible area of change under a new Prime Minister is on the government’s attitude to climate change and net zero.

We know that both contenders have committed to achieving the UK’s legislated 2050 net zero target. They have also signed up to a number of pledges put forward by the Conservative Environment Network, which include boosting domestic clean energy to shore up British energy security, implementing the government’s Environment Act, and using new ‘Brexit freedoms’ to support more sustainable farming practices. They are also open to establishing a carbon border adjustment mechanism to tackle climate leakage.

Yet, neither Truss or Sunak has demonstrated the same level of enthusiasm for green policies and Net Zero as Boris Johnson had during his time as Prime Minister. While both have managed to secure the backing of influential Conservative MPs who are committed towards keeping the UK on a 2050 Net Zero trajectory, it remains to be seen how much these voices will influence the direction of play.

Our analysis showed that yet again ESG saw the greatest number mentions this month as many pension schemes are putting environmental, social and governance issues at the top of their strategic priorities. As we draw closer to the Taskforce on Climate-Related Disclosures (TCFD) and the Paris-aligned disclosure requirements becoming mandatory from October 2022, we are likely to see a raft of updates and climate reporting from big institutions. Some schemes are more ahead of the curve than others, but growing interest is being generated as environmental matters take centre stage.  

This month, we also saw an announcement on new Legislation (new government permitting) on the Financial Services and Markets Bill. These reforms to financial services have the potential to impact the pensions landscape. The most likely element of this is Solvency II reform, which could encourage more insurance buyouts of pension schemes. This is due to a potential reduction in the risk margin for insurers under the new regulatory regime, which in turn could impact pricing and capacity in the bulk annuity market.

In other news, the TPR’s has indicated that further consultation on the new DB Funding Code will come this autumn, with the code to be operational from September 2023. Under new legislation, the DWP said that the proposed measures will contribute towards clearer funding standards and support trustees and employers to plan their scheme funding over the longer term, embedding good practice already seen in the market, as well as requiring trustees to report progress against scheme targets. Yet, little details on specific requirements have been disclosed at this point.

Looking ahead, UK providers are now able to apply to launch collective defined contribution (CDC) schemes, a development hailed by Guy Opperman for its potential to “transform” the country’s pensions landscape.

August is a notoriously a quiet month, but with the upcoming race for the next PM, we expect things to liven up as we approach September. Let the games begin.

If you would like any specific communications advice relating to any of these issues, do get in touch.