Our response to Law Commission recommendations on pension funds and social investment

Read the joint response (PDF)

The Law Commission made several recommendations for us in relation to Independent Governance Committees (IGCs), which we have considered carefully.

We intend to consult on rule changes in the first quarter of 2019 requiring IGCs to report on their firm’s policies on:

• evaluating environmental, social and governance (ESG) considerations, including climate change
• taking account of members’ ethical concerns
• stewardship

At the same time, we will also consult on introducing related guidance for providers of workplace personal pension schemes on considering financial factors (such as ESG risks and climate change) and non-financial factors (such as responding to members’ ethical concerns) when making investment decisions.

We are currently undertaking work on retirement outcomes – including on potentially making IGCs responsible for ensuring that decumulation products provide value for money – and to explore whether competition is operating effectively in the interests of non-workplace pension customers.

Consulting in the first quarter of 2019 will allow us to consult on a single package of rule changes, including other possible extensions to the remit of IGCs.

Permitted links rules

Infrastructure investment provides opportunities for social impact but such investments are typically for the long-term and may not be readily realisable.

The Law Commission also proposed that we consider guidance on the types of investments that can be made by unit-linked funds (our permitted links rules) to clarify how pension schemes can manage some element of illiquid investment within their funds.

We are taking forward further work on our permitted links rules in light of our involvement in HM Treasury’s Patient Capital Pensions Investment Taskforce and continuing work following the Treasury’s Patient Capital Review. We will progress this work in the second half of 2018.