U.K. pension funds are on a journey to be "safer, better and greener," and defined contribution plans are headed for consolidation, U.K. Minister for Pensions and Financial Inclusion Guy Opperman said Tuesday at the P&I World Pension Summit in The Hague.
Last year, the U.K. was the first G-7 country to commit to mandatory climate disclosures under the Task Force on Climate-Related Financial Disclosures, and pension funds will have to disclose how climate change impacts their investment portfolios as part of that commitment.
"The icing on the cake is that COP26 (the United Nations climate-change conference taking place in Scotland this fall) happens. I cannot understate the degree to which COP26 dominates the U.K. government right now. It is all pervasive," Mr. Opperman said in an interview with P&I.
Addressing attendees at the World Pension Summit, Mr. Opperman said that the U.K. is also working with other countries to increase alignment with the net-zero goals of the Paris Agreement. At home, the pension ministry will be consulting on a new proposal requiring trustees to measure and then report the Paris alignment of their investment portfolios. "The measures will enable trustees to assess their schemes' exposures to transition risks, it will give them the tools they need to communicate that progress to their members ... and to report on mission alignment," he said. "And it will help inform decision-making around investment stewardship and voting. We believe trustees need to use these tools," Mr. Opperman said.
Another mission of the pension ministry is to bring about greater consolation of defined contribution plans. The collective DC plan proposal calls for pooling participant assets and investments in both accumulation and decumulation phases of the retirement journey, with participants bearing the investment and longevity risks instead of the plan sponsor.
"We wish to have a much larger consolidated market in the defined contribution space. I have no doubt whatsoever that big is better," he said.
"As the DC market increases in size, we believe that larger schemes will increasingly be free to move beyond equity, gilts and bonds and start considering illiquid investments," Mr. Opperman said