Pension Schemes Bill [HL]

Baroness Hayman Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Baroness Hayman (CB)]

My Lords, it was with some trepidation that I put my name down to speak in today’s debate, given that my experience in the field of pensions is extremely limited—mainly as a trustee of charities, where I have found the discussions, particularly on the potential ending of defined benefit schemes, both difficult and complex. It is with even more trepidation that I stand to speak given the expertise and experience that have been evident in other contributions. I now bitterly regret—I see the noble Lord, Lord Young of Cookham, in his place—that I was not in my place in the Chamber of another place some 44 or 45 years ago and taking notice. I may have been, but I fear I have to tell him that I have no recollection of that particular speech, from which I could undoubtedly have benefited.

Noble Lords may well therefore ask why I am contributing at all. The clue comes in my declaration of interests. I co-chair the House of Lords cross-party group Peers for the Planet, which looks at the climate crisis. I should also declare that my youngest son works for a new organisation called Make My Money Matter, which aims to allow savers and investors to align their investments with their values. Unlike the noble Lord, Lord Sharkey, I have indeed spoken to him about the Bill.

The former Pensions Minister Steve Webb said:

“This Bill is notable more for the things that have been left out than for what it contains.”


It is on one of the issues that has been left out that I will speak briefly tonight: the environment, climate change and sustainability. There is no reference in the Bill to the environmental, social and governance responsibilities of pension funds, although they now have a responsibility to report on those issues. It will simply not be sustainable—if I can use that word—if in 2020, the year in which the UK will be hosting COP 26 and which brings in the decade in which the global community must respond to the challenges of the climate crisis, which is of pivotal importance to the future of our planet, we as parliamentarians do not challenge all policies and legislation on their impact on these issues.

Pension funds and schemes are particularly relevant in this area for two reasons. One is simply the amount of resources involved: $2.9 trillion. It is enormous, and the size and influence of pension funds mean that they can have a vital role to play in ensuring that the UK meets its climate commitments, as the Environmental Audit Committee of another place noted its Greening Finance report. The Pensions Minister himself put it very well last year when he said that

“pensions schemes ought to be thinking about the assets which help drive new investment … which deliver the sustainable employment, communities and environments which all of us wish to enjoy.”

Pension funds could have huge impacts on and give new impetus to a new green economy and the Government’s zero-emissions target.

As others have noted, the Long Title of the Bill is very short—but it is also very wide. I would like to see the Bill include provision for pension schemes to align their portfolios with the Paris Agreement objectives and report against the framework of the Task Force on Climate-related Financial Disclosures. This is not an issue simply of environmental benefit; it is an issue for investors and the safety and protection of beneficiaries. As Mark Carney, the outgoing Governor of the Bank of England, has made crystal clear, the financial and economic risks parallel the climate risks. Again, this has been acknowledged by the Pensions Minister, who said:

“The financial risks from climate change … were too important to ignore.”


So, although it goes much wider than the contributions of other noble Lords, I hope that the Minister will give some encouragement to the views of her department about taking the pensions industry along this line.

I have a more specific question on Clause 119 and the dashboard provisions in the Bill. There is much evidence that savers and investors would like to invest responsibly. For example, a recent DfID report showed that 68% of UK savers said that they would like their investments to take impact on people and planet into consideration, alongside financial factors. As I understand it, the proposals for the pensions dashboard are aimed at giving savers more information so that they can make better choices about their pensions. Is it possible—the noble Baroness, Lady Drake, referred to this—that issues far wider simply than those that have been spoken about so far, such as the environmental, social and governance information that the new pensions investment regulations welcomely require schemes to publish, will also be made available to people looking at their personal dashboard?

I will not apologise for diverting Peers from more specific and technical issues. As I said earlier, it is of immense importance that, as parliamentarians, we look at all the issues that are in front of us through the lens of the overwhelming issue of climate change.

Pension Schemes Bill [HL]

Baroness Hayman Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 26th February 2020 Grand Committee

[Baroness Altmann]

My Lords, I rise to move Amendment 28 in my name in this group and will speak to Amendment 92, to which I have added my name. I also support a number of the other amendments. The noble Lords who tabled them will obviously rise shortly to expound on their own aspects of this issue.

The main area this group deals with is the environmental impacts that pension funds can have. We have £1.3 trillion of pension assets; they can help tackle climate change. Our country will host the COP 26 in December, at which we will have the opportunity to show world leadership in our thinking on climate change and policies to address these issues.

Climate change, as most of us believe, poses a potentially material risk to pensions and financial assets. The insurer Aviva estimates that investors could lose £2.7 trillion from investment value globally due to climate change. I am delighted that the Government have tabled amendments giving Ministers a power to require pension schemes to disclose how they manage climate-related financial risks in line with the more detailed, granular requirements of the Task Force on Climate-related Financial Disclosures.

I support those amendments, but the Government have said that they will require only large schemes to report in line with the TCFD disclosure requirements. They have not said what “large” means, but I assume it will probably not include schemes with fewer than 5,000 members, for example. These smaller schemes still need to manage the risks to savers’ pensions potentially posed by climate change. Amendment 28 is therefore calling for the Pensions Regulator to create a compliance framework based on a public register of schemes and ESG—environmental, social and governance —investment policies.

In October 2018, the Government changed the law to require UK pension scheme trustees to prepare a policy on how they manage the financially material risks arising from issues such as climate change. Trustees are required to state these policies in their statement of investment principles, a statutorily mandated document which all schemes are required to have. Trustees should have updated these statements by 1 October 2019. Some schemes were required to publish them at that point.

However, the UK Sustainable Investment and Finance Association has reviewed—with the help of the Pensions Regulator—the policies of a representative sample of these UK trust-based pensions. For those schemes, representing 3 million or so savers, its report found clear evidence that “large scale non-compliance” with this requirement exists and that trustees had not been publishing their statement of investment principles. Two-thirds of the schemes in its sample had not published, and of those which had the policies were pretty thin and noncommittal.

It is not exactly clear why trustees are failing to disclose and comply with this new law. The UK Sustainable Investment and Finance Association has suggested that it may be because smaller schemes—schemes with fewer than 5,000 members, let us say—do not have a website, so the administrative burden of publishing these statements and complying with the law has proved overly taxing for them. There has therefore been a recommendation that the Pensions Regulator should be given a duty to obtain these statements of investment principles and publish them on its own website in a central registry. Amendment 28 seeks to insert this into the Bill.

If the Pensions Regulator has the power to obtain and publish these statements of investment principles, it will obviously be able to remove the administrative burden from the schemes. It will also give the regulator a much better ability to monitor compliance with these requirements. It will improve the transparency and scrutiny of the schemes’ policies to manage these environmental, social and governance risks, as well as providing the industry with a resource to find out about and share best practice. Importantly, it would allow scheme members to see their own schemes’ investment policies. These are the reasons why I urge the Minister to consider whether we might be able to insert this provision into the Bill.

The notion of a public register of these statements of investment principles and implementation statements could be a powerful way to drive up trustee awareness of action on the risks arising from climate change. It would allow monitoring and scrutiny of what these schemes currently do better to educate those which may not be compliant—some of these laggards, perhaps —about what the leading trustees and schemes are doing. Campaign groups could scrutinise this. Ministers could also scrutinise and report on the issues that are so important and potentially powerful in allowing our country to be a leader in this field, given the size of our pension assets. They dwarf those of most other countries, particularly in Europe. It could help to fill an important hole in the Government’s overall climate change strategy.

The Government are of course right to mandate that the large schemes are going to do this. As I say, I support the government amendments, but we should also bear in mind that this is a question of protecting all pension savers’ money—not just in the large schemes but in all schemes—from the risk of climate change. Therefore to expose workers in small companies or small schemes to more financial risks from climate change does not seem an effective way forward. We have an opportunity in the Bill to make a real difference. There is scope to help the pensions industry be better able to address the financial risks of climate change and to be better aligned with the interests of savers, who will increasingly be concerned about these issues. This is an opportunity to put our pension funds and pension industry on a more sustainable footing and, if noble Lords will forgive this play on words, it can also include sustainable investments in relation to climate and environmental sustainability.

I have added my name to Amendment 92 in the name of the Baroness, Lady Hayman, and I support Amendments 75 and 89, which talk about requiring schemes to align their portfolios with the Paris agreement objectives. The UK Government need to ensure that pension investment portfolios are aligned with, for example, the UK’s emission reduction targets. Pension funds also need to act to protect their beneficiaries’ savings from these financial risks. For example, research from the leading consultancy Mercer has found that for nearly all asset classes, regions and timeframes, a 2 degree increase in global temperature scenario would lead to much better projected returns than if there was a 3 or 4 degree increase in global temperatures. The requirements in these amendments would not necessarily involve disinvestment from any particular sector; it does not direct how the trustees must invest. It would involve trustees in assessing whether their assets in their portfolios have a clear strategy for, for example, aligning their business model with the UK emissions reduction timeline and taking appropriate action. That would also give the companies clear incentives to develop Paris-compliant business models and invest in low-carbon opportunities, making it much easier for the Government to achieve their own targets.

Amendment 92, in the name of the noble Baroness, Lady Hayman, would help to facilitate this by requiring pension schemes to report against the Task Force on Climate-related Financial Disclosures framework. The amendment would ensure that all pension schemes have to report against the same frameworks, so there is commonality here, and, as I say, it does not dictate that schemes have to pursue a particular investment or disinvestment strategy. It would be left to the trustees. Operational independence, which is, of course, an important part of our system for trustees, is maintained. However, the requirement to disclose how the trustees are mitigating climate risk should also help to drive up standards of trusteeship, as well as protecting these assets and enhancing the UK’s global role in tackling climate change and other related issues.

I beg to move, and I look forward to the debate, other noble Lords’ contributions and the Minister’s response.

[Baroness Hayman (CB)]

My Lords, I added my name to Amendment 28, which the Baroness, Lady Altmann, has just cogently explained to the Committee. I will speak to that, as well as to my own Amendment 52, about the information available for dashboards. I shall also speak to Amendments 74, 75, 76 and 92, which, as the noble Baroness mentioned, seek to strengthen the Government’s welcome Amendment 73, which recognises the salience of climate change to pension funds and to the Bill. I remind the Committee of my interests as co-chair of Peers for the Planet, and that my son works for Make My Money Matter.

--- Later in debate ---

[Baroness Stedman-Scott]

Of course we will be happy to write to answer the questions that my noble friend has raised.

[Baroness Hayman]

There is a lot of detail in what the Minister has said and I am very grateful to her for saying that she will look at it. I think she said that the Financial Conduct Authority is considering the requirements to be put on personal pension schemes; that is, those not covered by the government amendment and the regulations. The Minister was very helpful about the timetable of the consultation on the Government’s proposal on occupational schemes. Is there any timetable for personal pension scheme requirements? Is it the Government’s ambition that they should parallel the requirements in the Bill?

[Baroness Stedman-Scott]

I am advised that we need to get that information from the FCA; when we do, we will give it to all members of the Committee. I hope that that is acceptable.

Pension Schemes Bill [HL]

Baroness Hayman Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Baroness Janke [V]]

My Lords, I thank the noble Baroness, Lady Bennett, for her speech and her amendment. I also thank the noble Baroness, Lady Hayman, for her work on this issue and the Minister for all her work in achieving the government amendments on this important matter. While I recognise the major progress that has been made, I shall speak in support of Amendments 72 and 74, which are signed by my noble friend Lord Sharkey and myself. I shall speak also in support of Amendments 73 and 79 from the noble Baronesses, Lady Hayman, Lady Jones and Lady Bennett. I had also intended to sign these amendments and I apologise for not doing so.

In Amendments 72 and 74, the intention is to strengthen the obligation to ensure that the regulations of the scheme reflect the importance of the issue. Replacing “may” with “must” in the amendments to the Pensions Act strengthens the requirement on trustees to ensure that there is effective governance of the scheme with respect to the effects on climate change.

Amendment 73 strengthens the regulations and adds to our Amendments 72 and 74 by ensuring that relevant information in relation to climate change must be considered as part of the regulations.

Amendment 79 aims to ensure that the regulations place an obligation on trustees or fund managers to report on and publish how they have taken into account relevant treaties and other government commitments on climate change. The improvements to the Bill already made are very much welcomed, and we support these amendments today in the spirit of strengthening them. It has been well documented that more and more savers are keen that their savings should serve to strengthen ethical policies, particularly on climate change. As a result, they require more transparency on how their savings are invested.

Pension funds have huge economic power and must play their part in meeting our 2050 targets. UK pension funds hold more than £1.6 trillion in assets. The size and influence of pension schemes means they have a vital role to play in ensuring that the UK meets its climate commitments. It is essential that the Bill enables that to happen.

[Baroness Hayman (CB)]

My Lords, I remind the House of my interests as a co-chair of Peers for the Planet. I should perhaps also declare that my son works for a new campaign, Make My Money Matter, which is being launched today by Mark Carney and Richard Curtis. It encourages all of us to be more active to ensure that our pension schemes reflect our values and that they protect both our financial and environmental future—an indication perhaps that consumer pressure on issues like climate change in relation to pensions is on the rise from that described by the noble Lord, Lord Balfe. In that context, perhaps I should warn the noble Lord, Lord Naseby, that as a pensioner under the parliamentary fund, I may come and discuss these issues with him later.

As the noble Baroness, Lady Janke, said, I have Amendments 73 and 79 in this group, which are cross- party. I will also speak to government Amendments 75, 76, 77 and 78, which cover the same ground—I know that the Minister would say “cover that ground more comprehensively”.

At this stage, it is appropriate that I join others in thanking and praising both the Minister and her officials for the amount of work and careful consideration they have given to these issues and for their responsiveness to the issues that have been raised. We have moved some distance from the start of the Bill, from a position where there was no provision on climate risks to provisions for a regulatory framework that takes into account our objectives under the Paris agreement and which will ensure that trustees and managers are required to assess and report on their scheme’s alignment with the objective to keep global warming to 1.5 degrees centigrade. That includes assessing and reporting on how their schemes are exposed to the effects of climate change and on how the assets of the scheme themselves contribute to climate change.

Improving disclosure in this way is essential for consumers, who need to understand the risks attached to their personal investments. It is also essential for trustees, as greater transparency will help drive their behaviours and decisions, and trustees will need clarity on what is required of them and a clear signal of the long-term trajectory that the sector will need to follow if we are to achieve our net zero targets.

The two amendments that I have tabled are drafted very simply—some might say simplistically. They are broad and would apply to any regulations made under the Bill. Amendment 73 ensures that, in making regulations, the Government take account of international climate change treaties of which the UK is a signatory. It also ensures in turn that regulations require trustees or managers to take account of such treaties in addition to the existing general provisions to secure effective governance of a scheme with respect to the effects of climate change.

Amendment 79 ensures that regulations can place requirements on trustees or managers to publish information about how schemes have taken into account the objective to keep global warming well below 2 degrees centigrade or any other future targets under international treaties. That is critical, because disclosure will create pressure on trustees to reduce schemes’ contribution to climate change.

As I have said, the Minister has been extremely responsive, and we have had a constructive dialogue about these amendments. She has put down Amendments 75 to 78, which are, I hope, more comprehensive but slightly less comprehensible to the lay person. I will ask a couple of more technical questions, which I would be very grateful if she could respond to.

The first question is on Amendment 75 and addressing climate risk. Although the most significant climate-related risks which pension schemes face long-term are not idiosyncratic to particular companies, sectors or geography, they arise from system-level macroeconomic and financial stability risks caused by the impacts of climate change and a disorderly transition. Yet in fact the three material climate risks to portfolios that managers identify tend generally to focus on the risks associated with the transition to a low-carbon economy over the physical risks of climate change. I therefore hope that the Government will confirm the broadest possible definition of the risks in the Bill, meaning transitional, physical, financial and systemic.

On Amendment 76, I would be grateful if the Minister could confirm that proposed new Clause 41A(4A) and (4B) apply across all the regulations to be made under the Bill, rather than applying only to regulations referred to in new Clauses 41A(3)(b). That is essential if consideration for international and other climate change goals is to permeate the regulatory framework as it should.

On Amendment 76, again I would like some confirmation. There is reference to

“or other climate change goal.”

Can the Minister confirm that that includes our domestic net zero target—I think that was very much the intention—and that there will not be any diminution of our targets?

On Amendment 77, again, the reference is to Article 2(1)(a) of the Paris agreement, but does that encompass provisions in Article 2(1)(c) as well, which relate to financial flows and therefore seem to be relevant?

Lastly—the Minister will be glad to know—on technical issues, can the Minister assure me that Amendment 78 does not limit publication requirements to information on the effects of climate change on schemes but that it also covers the contribution of the assets of schemes to climate change?