A number of changes and new requirements come into effect on or from 1 October 2022. Here’s our rundown of the key things you need to know, and actions to take, to make sure your scheme is on top of the upcoming changes.
- Climate change: requirements extend to smaller schemes and new ‘Paris alignment’ reporting
- Investment consultancy (IC) and fiduciary management (FM) requirements
- Simpler annual benefit statements
- SIPs and implementation statements
- DC master trusts: employer-related investments (ERI)
Climate change: requirements extend to smaller schemes and new Paris alignment’ reporting
Two changes will take effect on 1 October in the climate change arena:
- Schemes with GBP1 billion+ of relevant assets will need to comply with the requirements of the climate change governance and reporting regulations (already in force for schemes with GBP5 billion+ of relevant assets). These requirements relate to trustee knowledge and understanding; governance, strategy and risk management; and reporting. Read more.
- The reporting requirements will be extended (including for schemes that come into scope on 1 October) to include ‘Paris alignment’ reporting. This means identifying and assessing climate-related risks and opportunities, taking into account your scheme’s alignment with the Paris Agreement goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels. Read more.
Action points:
- If your scheme has between GBP1 billion and GBP5 billion of relevant assets, make sure you’re ready to meet the requirements from 1 October.
- If your scheme was already in scope, or comes into scope on 1 October, talk to your investment advisers about the new ‘Paris alignment’ reporting requirements.
Investment consultancy (IC) and fiduciary management (FM) requirements
Regulations on setting strategic objectives for IC providers and competitive tendering for FM services will come into force on 1 October. They replace and largely replicate the existing requirements under Competition and Markets Authority (CMA) rules, but there are some changes to be aware of, in particular if your scheme uses in-house IC/FM providers. Read more.
Action points:
- Check if your IC/FM arrangements are impacted by any of the changes.
- Report compliance in your annual scheme return (no longer through a CMA compliance statement).
- Have a process in place to review your IC providers against their objectives at least annually and to review the objectives at least every three years/without delay after a significant change in investment policy (this was an expectation under the CMA rules, so most schemes will already have this in place, but is now a requirement under the new regulations).
Simpler annual benefit statements
If your scheme is a DC automatic enrolment scheme, annual benefit statements will need to follow a new, simplified format for members not in receipt of benefits. The statements must not exceed one double-sided sheet of A4-sized paper (when printed), and must have regard to statutory guidance on content and layout. For other schemes, the government ‘strongly encourages’ trustees to apply these principles. Read more.
Action point:
Check that your administrators have templates in place that comply with the new requirements.
SIPs and implementation statements
The Government has published guidance on trustee reporting in statements of investment principles (SIPs) and implementation statements, which applies to those documents in respect of any scheme year ending on/after 1 October. The guidance has been updated to provide greater clarity on stewardship, including voting and engagement. Read more.
Action point:
Make sure the guidance is taken into account for scheme years ending on/after 1 October 2022.
DC master trusts: employer-related investments (ERI)
Restrictions on ERI will be loosened in relation to DC master trusts: for these schemes, the restrictions will only apply to investments relating to a scheme funder, a scheme strategist and persons connected or associated with those parties. They will also be exempt from the 20% overall cap on ERI that applies to other multi-employer schemes.
Action point:
For our master trust clients, it may be appropriate to review your investment portfolios and any relevant monitoring processes in light of the new flexibility.
