Labour to mandate net-zero transition plans

In its election manifesto, published today (13 June), the Labour Party said it would “ensure the institutional framework for policy making reflects our commitments to reach net zero and meet our carbon budgets”.

It said: “Britain’s world-leading financial services industry has a major role to play in mobilising trillions of pounds in private capital to address the greatest long-term challenge of our age.

“Labour will make the UK the green finance capital of the world, mandating UK-regulated financial institutions – including banks, asset managers, pension funds, and insurers – and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.”

This proposal chimes with a similar pledge from the Liberal Democrats, who said they would require pension funds to demonstrate compliance with the Paris Agreement.

The UK already has some climate reporting requirements in place for pension schemes. Those with more than £1bn in assets have had to publish reports in line with the Task Force on Climate-related Financial Disclosures since 2022.

The UK’s current target is to reach net zero carbon emissions across the economy by 2050. However, an independent review published last year said the government was not matching its ambition with delivery.

Productive finance and a pensions review

Elsewhere in Labour’s election manifesto, the party reiterated its plan to increase investment from pension funds into UK markets, in line with the current government’s Mansion House reforms.

“We will adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC,” Labour said.

David Lane, chief executive of TPT Retirement Solutions, said consolidation “could provide better value to the schemes, incorporate the highest levels of stewardship and, ultimately, deliver better outcomes for pension savers”.

Labour also pledged to review the pensions landscape “to consider what further steps are needed to improve pension outcomes and increase investment in UK markets”.

It said the review would “consider what further steps are needed to improve security in retirement, as well as to increase productive investment in the UK economy”.

Tom McPhail, director of public affairs at The Lang Cat, said: “The commitment to reform workplace pensions so we have fewer, bigger and better run schemes is good news. On the other side of the election, whoever wins, demands will be placed on pension schemes and their investment strategies to adapt to meet the political agenda. The industry should prepare for some robust conversations ahead on how fiduciary duty is defined and interpreted.”

David Brooks, head of policy at Broadstone, added: “The push for productive finance comes with a caution warning as there may be a disappointing uptake from defined benefit schemes but an ongoing review into value for money may allow more schemes to allocate long-term illiquid assets to this space.

“Whatever government we have in three weeks, we would counsel caution in this space as these assets are not a one-way bet and the long-term interests of pension savers will need to be carefully balanced with the short-term needs of the country.”

Continuity ahead?

As well as retaining the state pension triple lock as expected, Labour said it would “adopt reforms to workplace pensions to deliver better outcomes for UK savers and pensioners” – although it did not specify what these were.

Many in the industry have urged the next government to implement changes to auto-enrolment, allowing workers to be automatically enrolled from the age of 18 and making all earnings eligible for pension contributions.

Steven Cameron, pensions director at Aegon, said: “Automatic enrolment into workplace pensions has been hugely successful in helping millions of people build up more in workplace pensions. But neither the Labour nor Conservative manifesto makes any mention of when planned enhancements might be advanced.

“These would open up automatic enrolment from age 18 rather than 22 and would gradually increase the minimum contributions to 8% of earnings from the first £1, rather than only on earnings above £6,240. We very much hope whoever is in power advances this as a priority to start the journey towards more adequate pension savings.”

Broadstone’s Brooks said that the lack of new policy ideas in the main parties’ manifestos suggested that there could be a period of “welcome continuity over the next five years”.

“This is pleasing given the huge number of policies that are already progressing through regulatory and legislative processes,” he said.

Brooks welcomed the absence of Labour’s previous proposal to restore the lifetime allowance, abolished by the current government, which he said suggested a “U-turn on its previous rhetoric”.

“Again, this continuity is to be welcomed – especially given the industry has already expended significant effort in preparing for this change – but this may be a policy area that Labour revisits should it gain power,” he said.

Further reading

Tories confirm ‘triple lock plus’ but pot for life missing (11 June 2024)

Lib Dems to require climate reporting from pension funds (10 June 2024)