Regulation 'needed' but keeping up is a 'challenge'

Speaking yesterday (7 June) at the Pensions and Lifetime Savings Association Investment Conference, Diageo Pension Scheme trustee and Independent Governance Group trustee director Tegs Harding said: "The regulations we're seeing are needed, but keeping up is a challenge."

Janus Henderson Investors head of UK institutional Anil Shenoy said research by the firm found the top challenge currently for trustees is the "growing regulatory complexity".

Harding suggested there is a "systemic risk" the industry is being left to its own devices on issues such as climate and liquidity, so "regulation is needed here", but warned of the capacity issue to keep up with all regulation.

Also speaking on the conference panel - which looked at what is on trustees' minds - Tate & Lyle chair of trustees Michael Chatterton said cyber is "high up the agenda" for trustees, highlighted especially by the recent cyber incident at Capita, he said.

Other key concerns highlighted includes ESG. Shenoy outlined survey results which showed just 6% of schemes see environmental, climate and social risks as material to their ability to pay pensions.

However, 72% agreed investments with stronger ESG alignment will outperform over the long term, up from 61% last year.

Mallowstreet chief executive Stuart Breyer said trustees are "asking more challenging questions" around ESG and climate.

Harding noted: "It doesn't matter the type of scheme you're in, we have all got to do more on this topic.

"Regulations are driving us to focus on metrics such as ‘scope 1' and ‘scope 2', but looking from outside the industry this might not be seen as the correct choice."

She highlighted the need to "focus on the actions needed to get there", while warning it is "not just about oil and gas".

"If you want to get to net zero, it is not just about looking at emitters."

 Breyer said in order to achieve results in ESG, "we need to understand the wider world's understanding".

Shenoy also noted 64% of schemes say more member engagement is "key" to achieving results, with Harding suggesting moving away from statistic-led information and moving towards other tactics such as video to engage members.

Breyer said: "We need to get people to save form a young age and consistently. I fear the generation going through the auto-enrolment (AE) world won't have enough money by doing what they were told by us, i.e ‘contribute 8% to your pension'."

Chatterton suggested AE rules need to be adjusted, and "people need to know when they can join".

Other issues the research highlighted as having the most material risk for schemes were investment underperformance (33%) and covenant risk affecting future pensions at 14%, rising to 43% of schemes with weaker sponsors.