Accounting for Sustainability (A4S), the Church of England Pensions Board and Railpen have developed a charter for pension insurers that sets out guiding principles for the bulk annuity process focusing on transparency, decision making, reporting and engagement, and collaboration.

The pension funds that have joined the charter as founding signatories include Cancer Research Pension Scheme, Church of England Pensions Board, HSBC Bank Pensions Scheme, Railpen, and Railways Pension Scheme.

For insurers, founding signatories include Aviva, Just Group, Legal & General, Pensions Insurance Corporation, Standard Life, and Rothersay.

Advisers Cardano, Aon, Hymans Robertson, LCP, Mercer and Redington have also signed up for the charter, as well as the Pensions and Lifetime Savings Association and the Pi Partnership Group.

A4S director of capital markets Kerry King said the charter was developed after pension fund chairs that are A4S members had voiced concerns over bulk annuity transactions that had taken place already or were about to take place. Their worries centred around their sustainability embedded strategies and how they would then be transferred over in a bulk annuity process “recognising that sustainability doesn’t make the cut when it comes to the priority criteria”.

She added that chairs were concerned that sustainability didn’t “feature in that process and those conversations they [had] around bulk annuity transactions”.

“Some concerns were around exclusions and how their strategy excludes certain things, and the bulk annuity providers are not able to guarantee that, and then also around reporting to members,” King said.

With a majority of defined benefit (DB) pension schemes in the UK, representing £1.4trn in assets under management, now closed with many maturing and considering transacting to a pension insurer, A4S has developed a charter setting out four guiding principles for insurers for the bulk annuity process. This followed an extensive consultation process with pension funds, insurers, pension advisers and the regulatory community.

The first principle is around 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.

“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”

Tim Miller, senior manager of pensions policy at Railpen

The second principle is around decision making. This includes evidence and understanding of how sustainability considerations are incorporated into investment analysis and decision-making processes, and investment stewardship activity.

The third principle highlights the need for ongoing reporting and engagement to key stakeholders on sustainability commitments beyond the point of transaction.

Lastly, the charter stresses the need for collaboration, and asks for commitment on ongoing engagement across the pensions sector as responsible investment best practice evolves.

King said: “The charter delivers on a better articulation of what the pensions community wants from insurers. It is about what insurers should be doing as far as the pensions community is concerned.”

She added that the charter will continually evolve, and by committing to the charter, signatories have pledged to contribute to its development as the market evolves.

Tim Miller, senior manager of pensions policy at Railpen, said 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 member,” he said.

Stephen Barrie, deputy chief responsible officer at the Church of England Pensions Board, said signatories have made an important commitment to the beneficiaries of DB schemes and the broader community.

He said: “By signing the charter, signatories are recognising the importance of transparency, embedding sustainability into decision making, ongoing reporting to beneficiaries 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 beneficiaries to retire into.”

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