Sustainability charter launched for Bulk Purchase Annuities

Nearly two dozen financial services companies sign on to charter for reporting and engagement processes.

A4S has launched a Charter with twenty signatories for BPA.

Twenty pension funds, insurers, trustees, and advisers have signed up as founding signatories to the Sustainability Principles Charter, which aims to promote greater transparency, reporting, and engagement around sustainability in the bulk annuity process (BPA).

This process was launched by Accounting for Sustainability (A4S) on 30 January.

A4S’s charter specifies that it seeks to align expectations around sustainability within the bulk annuity process. “It sets out clear principles to drive greater transparency, reporting and engagement before, during and after a buy-out or buy-in transaction between pension funds and insurers,” said the press release on the launch.

The reasons for launch of the charter include that the majority of occupational defined benefit (DB) pension schemes in the UK, representing £1.4 trillion in assets under management, are now closed, with many maturing on a path that considers transacting with a pension insurer.

“Insurers, as well as pension funds and advisers, therefore, play an increasingly important role in ensuring that pension investments are both resilient to the climate, nature and social crises that we face, as well as playing an active role in investing in a more sustainable world for pension members to retire into,” the release said.

“Pension schemes require transparency during the bulk annuity process –
before, during and after the point of transaction."

Kerry King, A4S’s Director of Capital Markets, said that many DB schemes have made sustainability-related commitments to their members; this is why the charter was important, to set levels of behaviour and commitment by the industry.

“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” said King. “In addition, insurers welcome guidance from pension schemes and their advisers as to the information that will be valued as part of the process.”

The four key principles of the charter are:

1.      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.

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

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

4.      Collaboration: Commitment to ongoing engagement across the pension sector as responsible investment best practices evolves.

Major pension funds – Aviva, Just Group, The Church of England Pensions Board, and Railpen to name a few (a full list can be found here) – have brought together pension funds, insurers, pension advisers, and the regulatory community to produce a Sustainability Principles Charter for the bulk annuity process.

“This charter will promote transparency and raise the standards of sustainability
that pension schemes can expect from their risk transfer partner."

Also among the signatories is Pension Insurance Corporation (PIC), a specialist insurer of defined benefit pension funds.

“PIC is proud to be considered as a founding signatory to the Sustainability Principles Charter for the BPA process,” said Cléo Fitzsimons, Head of Sustainability, PIC. We believe that this charter will help promote transparency and raise the standards of sustainability that pension schemes can expect from their risk transfer partner. We also believe that the charter will simplify reporting throughout the BPA process given its focus on the Matching Adjustment assets that directly back pension scheme liabilities.”

In October last year, Fitzsimons told Insurance Investor that the definition of ‘good’ stewardship has changed in the past few years and there is more demand on the actions a company takes in order to be viewed as doing good and achieving top results. “The industry now refers to the definition provided by the Financial Reporting Council (FRC) and behaviour is aligned with the expectations of the FRC’s UK Stewardship Code, of which PIC is a signatory,” she said, as an example.

“The UK Stewardship Code informs the industry on what high standards of Stewardship look like. There are also initiatives like the UN Principles for Responsible Investment (UNPRI), which helps set the tone for high standards and collaborative behaviour. Before such initiatives, everyone was doing their own thing in an uncoordinated fashion. This is much more efficient for all parties,” Fitzsimons added.