Royal Assent locks in ESG duties for pension funds

The act furthers the government’s green agenda by supporting progress towards net zero

The Pension Schemes Bill has received Royal Assent, creating new laws covering areas including defined benefit scheme protections, pensions dashboards and climate change.

Pension schemes will now be required to take account of the government’s net zero targets and the Paris Agreement, which seeks to limit global temperature rises to 1.5°C.

Trustees will have to review the impact of climate change on their investment strategy, manage their exposure to these risks and determine targets for their exposure.

Minister for pensions, Guy Opperman, said: “This is a historic day for UK pensions, and I’m thrilled that after more than 12 months, amidst all the challenges we’ve faced, the bill has now received Royal Assent.

“This act makes our pensions safer, better and greener, as we look to build back better from the pandemic. Its passage will reassure savers that they can, and will, have a retirement they deserve.”

Tom Selby, senior analyst at AJ Bell, comments, said the act could “fundamentally” change the way pension companies invest.

He said: “The act will place a new emphasis on schemes to consider the climate change impact of the investments they make on behalf of members and publish information for members on how this has been achieved.

“Over the longer-term we expect savers to take a much keener interest in how and where their retirement pots are invested, so there is every chance firms will need to go above and beyond these requirements to satisfy members.”

The act will strengthen protections for pension savers by extending the powers of the Pensions Regulator, introducing the power to issue civil penalties of up to £1m, alongside new criminal offences.

Bosses who run pension schemes into the ground, or plunder pots to line their own pockets now face a maximum penalty of seven years in prison.

The introduction of pensions dashboards will create one single platform to more easily access and review pension pots. Savers will be able to see how much they can expect each month in retirement, and find out how they can improve their retirement prospects.