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Major pension funds commit to net zero carbon emissions by 2050

Posted on: 19th Mar 2021 by: CamOuse Financial Management Limited

A new Net Zero Investment Framework has been launched by the Institutional Investors Group on Climate Change (IIGCC) which outlines a commitment to net zero carbon emissions by 2050. The framework aims to encourage investors to develop an investment strategy that achieves net zero, and the framework is already being put into practical use.

At the time of writing, 36 investors collectively managing assets of over £6.1trillion have adopted the framework. Among these investors are a significant number of pension schemes: Scottish Widows, the Environment Agency Pension Fund, Royal London, National Grid UK Pension Scheme, the Church of England Pensions Board, Brunel Pension Partnership, Northern Local Government Pension Scheme, Lloyds Banking Group Pensions Trustees Limited and Nest. 

The investment framework is designed to deliver on the Paris Agreement goal of keeping global warming well below 2 degrees celsius, compared to pre-industrial levels, preferably below 1.5degrees. It’s built upon three specific types of target which will be used to measure success. These are portfolio level targets for decarbonisation and investment in climate solutions, timebound portfolio coverage targets for companies and assets to meet net zero or aligned criteria, and engagement coverage threshold ensuring intensive engagement to drive the transition. 

UK Pensions Minister, Guy Opperman, had this to say about the framework: “Bringing climate change to the top of the agenda and ensuring that Britain’s pension investments act on managing climate change risk will not only help the UK reach net zero, but ensure a brighter future for all.”

“In the run up to COP26 (the UN Climate Change Conference) more countries than ever are signing up for net zero. This creates huge opportunities, but also risks, for institutional investors such as pension schemes. That is why we’re the first major economy to legislate to require pension schemes to set targets to manage their own climate risks.”

“I therefore welcome both the ambition and hugely practical guidance contained in this framework, which will help even more institutional investors aim for net zero.”

Tags: General Information, Pensions,

Alasdair Cant

I like the sound of this- not before time too. I’d like to be kept in touch and am particularly interested in how I can proactively invest in ways that support carbon neutral adoption by companies.

5 stars

  • Alasdair Cant
  • 9th April 2021


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Understanding the true cost to your business

Pension arrangements must be available for all employees. There are three categories of employee:

Eligible

Aged between 22 and State Pension Age (SPA) with qualifying earnings over the Auto Enrolment earnings trigger

Non-eligible

Aged between 16 – 74 with qualifying earnings between lower threshold and the Auto Enrolment earnings trigger
 
Aged between 16 -21 or SPA – 74 with qualifying earnings over Auto Enrolment earnings threshold

Entitled

Aged between 16 -74 with earnings below the qualifying earnings lower threshold

Important Notes

  1. Eligible jobholders must be auto-enrolled
  2. Non-eligible jobholders are allowed to be auto-enrolled if they want to
  3. Entitled workers are entitled to join a pension scheme, but the employer doesn't have to contribute

Qualifying Earnings lower threshold

£5,772

Qualifying Earnings upper threshold

£41,865

Automatic Enrolment earnings trigger

£10,000

Minimum contribution level options:

8% of Qualifying Earnings of which

3% is employer's (starting at 1%)

9% of Basic Salary of which

4% is employer's (starting at 2%)

8% of Basic Salary of which

3% is employer's (starting at 1%)

(Where basic salary is at least 85% of total earnings)

7% of gross earnings of which

3% is employer's (starting at 1%)

Pay reference period

Essentially the frequency that the jobholder is paid e.g. monthly, weekly etc. but with reference to the tax month, week etc. therefore it may not be the same as the payroll period.

Deduction and payment of contributions

It is the employer who is responsible to calculate, deduct and pay all contributions to the AE scheme. NOTE – the first and last contributions are likely to be for less than a full pay reference period and should be adjusted accordingly.

Payroll services

It can be seen that it is very important that the payroll system synchronises with the AE scheme otherwise the employer will not be carrying out all requirements and then penalties will be incurred.

Staging date

Based on the employer’s payroll size as at 1 April 2012 and can be found at www.thepensionsregulator.gov.uk/employers using your PAYE reference. The Qualifying Workplace Pension Scheme must be registered with The Pensions Regulator within 4 months of the staging date.

Compliance and communication

Postponement

Auto-Enrolment can be postponed for up to 3 months:

  • For current eligible employees
  • For workers that meet the criteria in the future for the first time e.g. avoid joining temporary or lower paid workers

Opt-Outs

All eligible employees must be auto-enrolled, but can, with the correct notification, opt-out within one month of joining the scheme and be treated as never having joined. They can opt back in and will automatically be auto-enrolled every 3 years in any case!

Communication

There is a wide range of information that must be provided to all employees at certain times, such as:

  • The date auto-enrolment took place for eligible jobholders
  • That non-eligible jobholders have the statutory right to opt in
  • Entitled workers have the right to request the employer to enrol them into a pension scheme

Salary sacrifice

Contributions can be paid by effectively reducing salary, which saves on NI contributions, but employee must choose to do this – they cannot be forced, so a contractual variation will need to be implemented.

Default investment fund

Investment Options

All eligible employees will be automatically invested into a default investment fund, which is a balanced risk fund that is “life styled” to account for the employees approach to retirement. They also have the option to invest in a wide range of funds of their choosing.