“Today marks the first date from which Implementation Statements are required to be included within or alongside schemes’ Annual Report & Accounts, where these are signed off from 1 October 2020. Through the planning phase there has been much industry discussion on interpretation of the new regulations and how scheme’s will be able to comply in a cost effective manner. The challenge of compliance would appear to be tougher for smaller pension schemes. Larger schemes often use segregated mandates to implement their asset allocation and it is fairly straightforward to assimilate voting and engagement behaviour if you have a direct relationship with the fund manager and your holdings are clearly identifiable. The fact you will be paying material fees is also likely to encourage the investment manager to provide the relevant support. Smaller schemes typically use pooled funds and have a less direct relationship with the investment manager (and pay much lower fees in £ terms) all making it challenging to get direct support from the manager in question.
“Early examples we have seen are showing up this challenge. We have seen statements that identify voting patterns and engagement examples at a manager level. Our interpretation is that this is not sufficient as the new regulations require that trustees’ voting behaviour disclosures must relate back to their own portfolio. This is proving challenging for managers as this is a new requirement for them and they are not organised to provide this data. We suspect also that some consultancies will not have scoped the challenge out in sufficient detail to be able to request and gather data in an efficient and timely manner. Guidance from the PLSA, confirmed by the DWP is that if scheme’s have made reasonable efforts to collect the data but are unable to do so that they will not be deemed to be in breach. We hope that the Pensions Regulator supports this guidance.
“A ‘pass’ in year one is better than a ‘fail’ but as well as falling short of the letter of the law, a ‘pass’ does nothing to support the underlying principle that as asset owners, trustees should be exerting greater influence over the voting and engagement behaviour of their delegatees. As the cost of investment managers providing the required information is non-trivial we expect a fluid exchange of the right information will take more than single scheme or single adviser pressure, instead, it will likely take TPR or DWP engagement with the asset management community.”
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