The UK pension and insurance industry is taking a significant collaborative step towards greater transparency, reporting and engagement around sustainability in the bulk annuity process, with today’s launch of the Sustainability Principles Charter. LCP are proud to be one of the signatories. 

The Charter, developed by Accounting for Sustainability (A4S), the Church of England Pensions Board and Railpen, sets out four guiding principles for the bulk annuity process focusing on transparency, decision making, reporting and engagement, and collaboration.

The majority of occupational defined benefit (DB) pension schemes in the UK, representing about £1.4 trillion in assets under management, are now closed with many maturing on a path, which considers transacting to a pension insurer.

A4S Director of Capital Markets Kerry King, says many DB schemes have made sustainability-related commitments to their members.

“Pension schemes, therefore, require transparency during the bulk annuity process – before, during and after the point of transaction – on how the insurer considers these commitments and ensures the schemes’ assets will continue being resilient to the growing threats from climate change and other sustainability challenges. In addition, insurers welcome guidance from pension schemes and their advisers as to the information that will be valued as part of the process”, Ms King said. 

Charlie Finch, Partner in LCP's Pension Risk Transfer team, added: “We warmly welcome this charter as an important step in driving higher standards of sustainability across the bulk annuity sector. We first started reviewing the insurers’ sustainability credentials over five years ago and have seen them make big improvements in that time.

“When our pension scheme clients transact, they are entering into a long-term, essentially irreversible contract. Sustainability objectives such as achieving net zero emissions by 2050, reversing the destruction of nature and addressing social inequalities are critical for protecting the health of the economy and, hence, insurers’ ability to pay the promised benefits. The charter, therefore, helps support the long-term security of members’ pension benefits.”

The Charter was developed after an extensive consultation process with pension funds, insurers, pension advisers and the regulatory community. It provides guidance around four key principles:

•  Transparency 

Transparency of values, principles and investment beliefs in relation to sustainability, as well as ongoing commitments that may guide future policy and practice affecting sustainability approaches. 

• Decision making 

Evidence and understanding of how sustainability considerations are incorporated into investment analysis and decision-making processes, and investment stewardship activity. 

•  Reporting and Engagement 

Ongoing reporting and engagement to key stakeholders on sustainability commitments beyond the point of transaction. 

•  Collaboration 

Commitment to ongoing engagement across the pension sector as responsible investment best practice evolves.

Senior Manager of Pensions Policy at Railpen, Tim Miller, says the Charter is an excellent demonstration of collaboration between the pensions and insurance industries.

“In years to come, the pensions industry could see hundreds of billions of pounds of DB assets transfer to the insurance industry through bulk annuity transactions. We believe this Charter will form a critical element in the bulk annuity process, to the ultimate benefit of members.”

Twenty pension funds, insurers and advisers have signed up to The Charter as Founding Signatories, including the six largest pension insurers: Legal and General, PIC, Rothesay Life, Aviva, Standard Life, part of Phoenix Group, and Just Group.

The Deputy Chief Responsible Investment Officer from the Church of England Pensions Board, Dr Stephen Barrie, says signatories have made an important commitment to the members of DB schemes and the broader community. 

“By signing the Charter, signatories are recognising the importance of transparency, embedding sustainability into decision making, ongoing reporting to members and/or trustees, and engagement across the sector as best practice evolves. Not only will it be a helpful guiding tool during the bulk annuity process, but it also means that we are all playing an active role in investing in a more sustainable world for members to retire into”, Dr Barrie said.

Click here for more information on the Sustainability Principles Charter.