In the latest edition of our Taylor Wessing Pensions Bulletin we give a snapshot of some of the latest pensions developments below.

Please get in touch with your usual Taylor Wessing pensions contact if you would like to discuss anything you have seen in the Bulletin.

The 'S' in ESG

A DWP- assembled Taskforce is consulting on how the UK pensions sector can improve its consideration of social factors in investment decision-making.

This consultation sets out over 30 recommendations across different stakeholders in the pensions industry which include, for example, that regulators such as the DWP should consider formally setting out expectations on addressing social factors, and that asset managers should report transparently on how they have influenced social outcomes. 

For pension trustees the guide suggests that they should ensure their asset managers consider social factors and integrate them into their investment strategy and stewardship. It provides example RFP questions and mandate terms, and looks at the issues in three parts:

• social factors and pension funds, relating to why material social factors are important in an investment context and how this aligns with trustee fiduciary duties
• social factors and data, which relates to the data that trustees can use to manage social factors along with a materiality framework and methods for prioritisation, and
• social factors in an investment profile, which provides a framework for addressing social factors in pension scheme investments.

The guide is detailed and welcome in an area that is often overlooked in the area of ESG factor assessment, because arguably it is so subjective and its financial impact difficult to quantify. Though the guide is still in draft and the Taskforce is holding roundtables to discuss the issues, this is clearly a developing area which trustees will need to monitor in case any more formal obligations on them and other stakeholders that might affect them emerge from the consultation, which closes on 1 December 2023. 

Pensions Ombudsman rejects member surplus complaint

The Pensions Ombudsman has rejected a member complaint about a trustee's decision to distribute surplus on a winding up to the scheme employer without first augmenting benefits which the trustees had the discretion to do under the scheme rules.  The Ombudsman focussed his conclusion on the decision-making processes of the trustees and in particular:

• in response to the assertion that the trustees must act 'in the best interests of scheme beneficiaries' reiterated the principle that that means in the pension scheme context that the trustees must act in a way to promote the proper purposes of the trust for which it was created; and
• that 'beneficiaries' will include an employer to which surplus can be paid under the scheme rules.

Having looked at all of the factors which the trustee took take into account and the process it had followed, the Ombudsman concluded that the decision was not unreasonable or perverse to the extent that no other reasonable decision maker could have made it, though that was not to say that another trustee would reach a different conclusion that was also not unreasonable or perverse. 

With a large number of schemes in surplus this issue is likely to come up more. In our view, one key point for trustees is ensuring they have properly considered the full range of options open to them when deciding how to exercise their power. The risk of successful complaints, can be mitigated by taking professional advice and proper record keeping when making potentially-contentious decisions such as this. 

Administration – are your agreements up to date?

As the importance of the scheme administrator in delivering good member outcomes comes more sharply into focus, trustees may now wish to ensure that their administration is adequate and that their administration terms are fit for purpose. We have published a briefing note explaining why it might be a good idea for trustees to review their existing agreements, and some terms they might look to negotiate if they are making a change.