The Department for Work and Pensions (DWP) “slightly regrets” some of the wording in the announcement about its consultation on changes to the investment regulations for occupational pension schemes, a civil servant has said.

On Monday the government issued a press release announcing the launch of the consultation, which seeks to “clarify and strengthen” trustees’ investment duties. 

Headlined ‘Billions invested by pension schemes to be used for social good under new regulations’, the press release said that members would for the first time be given powers to hold their pension schemes to account over how social and environmental factors impact their investments.

It quotes Esther McVey, secretary of state for work and pensions, as saying: “These new regulations will empower savers all over Britain, ensuring that their voices are heard when their savings are invested.”

Speaking at a conference of the Association of Member Nominated Trustees in London this week, David Farrar, senior policy manager at the DWP, said the point the department had wanted to make was that the proposed regulation would “formalise the position of members to have their voices heard, in the sense that it would give them clarity about when and where trustees would take account of their views”.

It “slightly regretted” some of the wording, he said, “because clearly it has set hares running a little bit where people think that we’re suggesting they have to take account of people’s views”.

In reality, the DWP was trying “something a bit more modest”, added Farrar. 

Some lawyers had told IPE the statements in the press release were misleading. 

What the government said

The government’s proposal is intended to make clear that the financially material risks trustees must take into account when making investment decisions include those stemming from environmental, social and corporate governance (ESG) factors. 

This is separate from trustees’ ability to take account of members’ views on non-financial matters. The government has also proposed requiring trustees to make a statement explaining “the extent to which” they have taken into account scheme members’ views on such issues. This leaves open the possibility of trustees stating they don’t take members’ views into account at all – and the consultation document makes clear they are not obliged to do so. 

The document states: “Trustees have primacy in investment decisions and, while they should not necessarily rule out the ability to take account of members’ views, they are never obliged to, and the prime focus is to deliver a return to members.”  

One lawyer said the wording in the press release about empowering members looked like “sloppy political rhetoric”, but added: “Perhaps they are cleverer than that – and are trying to pressure trustees to do this by the back door”.

In its coverage of the DWP’s consultation, UK newspaper The Guardian portrayed the government’s proposals as heralding significant change for pension funds and the fight against climate change. They were “designed to give pension fund trustees more confidence to divest from environmentally damaging fossil fuels and put their cash in green alternatives if it meets their members’ wishes”, the paper wrote. 

According to the Law Commission, trustees can make investment decisions based on members’ views if they have good reason to think the scheme members hold the concern and the decision would not be significantly financially damaging. 

The consultation is open until 16 July.

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