A Sustainability Principles Charter for the bulk annuity process
Background
Accounting for Sustainability (A4S), The Church of England Pensions Board and Railpen have brought together pension schemes, insurers, pension advisers and the regulatory community to produce a Sustainability Principles Charter for the bulk annuity process.
The Charter 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 schemes and insurers.
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 which considers transacting with a pension insurer.
Insurers, as well as pension schemes 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.
UK occupational defined benefit pension schemes which are closed to new members or future accruals now represent around £1 trillion in assets under management. Many of these schemes will consider, as part of their endgame planning, purchasing an annuity policy whereby their liabilities are transferred to an insurer (often called a Bulk Purchase Annuity or BPA provider). This process results in a pension ‘buyout’ or ‘buy-in’. Activity in this market has accelerated significantly since 2023, and billions of transactions are expected in the next five to ten years.
In response to concerns expressed by pension scheme chairs and trustees about inconsistent consideration of sustainability in the BPA provider selection process, A4S, the Church of England Pensions Board and Railpen established the Sustainability Principles Charter for the bulk annuity process. The charter aims to improve transparency, reporting and engagement among pension schemes, insurers and the advisers in the middle, helping schemes to compare insurers’ sustainability approaches before transacting and to assess ongoing alignment afterwards, while also signalling the importance of sustainability credentials as a selection criterion.
The four key principles
The charter’s four principles clearly articulate what pension schemes want to see from insurers, what ‘good’ looks like, and what it means to go above and beyond.
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 practice evolves.
The Signatories
Over 40 organizations have signed the charter, including all UK BPA providers and a large group of pension schemes and pension advisers. Signatories have committed to adopting (insurer signatories) and supporting (other signatories) the charter principles. They are participating in cross-industry working and steering groups to support implementation and process efficiency. Without sharing commercially sensitive information and while being careful to abide by the letter and spirit of anti-competitive/ anti-trust laws, this cross-industry collaboration has focused on embedding the charter’s principles into decision-making processes, tackling system inefficiencies and collectively exploring barriers to progress.
Please email info@a4s.org if you would like your organization's name to be added as a signatory to this Charter.
Insurers
- Aviva
- Blumont Annuity Company UK Limited
- Canada Life
- Just Group
- Legal & General Group
- M&G
- Pension Insurance Corporation (PIC)
- Standard Life, part of Phoenix Group
- Rothesay
- Royal London
- Utmost Life and Pensions Limited
Advisers
- Aon
- Barnett Waddingham
- Broadstone
- Cardano
- EY
- Hymans Robertson
- Isio
- Lane Clark & Peacock (LCP)
- Mercer Limited
- PwC
- Redington
- WTW
- XPS Group
Pension Schemes
- Cancer Research UK Pension Scheme
- Church of England Pensions Board
- Church of Scotland Pension Schemes
- HSBC Bank (UK) Pension Scheme
- Merseyside Pension Fund
- National Grid Electricity Group Trustee Limited
- Railpen
- Railways Pension Scheme
- Rolls Royce UK Pension Fund
- United Reformed Church Ministers' Pensions Trust
- United Utilities Pension Scheme
- United Utilities PLC Group of the ESPS
Others / Professional Trustees
- Accounting for Sustainability
- Association of Member Nominated Trustees
- Law Debenture
- Pensions and Lifetime Savings Association
- Pi Partnership Group
Carl Moxley, Group Climate Director and Matyas Horak, ESG Investment Manager, at L&G discuss the benefits of the Sustainability Principles Charter and the Bulk Annuity Sustainability Survey.
