Here we provide further guidance on these requirements. 

The new requirements, which are contained in the amendments to regulation 2A (additional requirements in relation to default arrangements) of the Occupational Pension Schemes (Investment) Regulations 2005, mean that for each default arrangement, the SIP must include: 

• an explanation of the kinds of investments held in illiquid assets 

• why these assets have been chosen in comparison to other asset classes 

• the age profile of members with exposure to such investments and whether investments are held directly or via a collective investment scheme 

These requirements apply to all default arrangements which satisfy regulation 3 of The Occupational Pension Schemes (Charges and Governance) Regulations 2015, not just the core or primary default offering. Trustees must ensure that the relevant statements are made about all default arrangements including any employer-specific defaults which satisfy regulation 3.  

Best practice in meeting the SIP requirements is for each default arrangement to have its own section with its own illiquid policy statements included. Trustees may choose to present the requisite information in a different way, ensuring it is presented clearly for members. However, as the legislation requires the information to be included in the SIP, simply signposting to another document is not acceptable.

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Market oversight: focus on administrators

We recently published new insights from our year-long engagement with 15 pension administrators, highlighting the growing importance of administration.

The review found encouraging signs of progress, with many administrators becoming more strategic and resilient. However, challenges remain particularly around changes to regulatory requirements, technology, staffing, data, and cyber security.

Administration remains central to good saver outcomes and so we welcome these improvements. But more work is needed to reach the standards we expect.

Investing in technology and new skills, improving data, pushing for better governance and transparency, and strengthening resilience to cyber-attacks, should help reduce risks and improve outcomes for savers.

We expect administrators and trustees to reflect on these findings and work together to identify ways to improve administrative practices to better serve savers. As the market evolves, trustees must take greater responsibility and accountability for ensuring those improvements happen.

TPR’s industry discussions with administrators focused on four key themes:

• financial sustainability
• technology and innovation
• risk and change management
• cyber resilience

Key insights shared in our latest market oversight report, are intended to support all those involved in administering occupational pension schemes and to highlight opportunities to strengthen governance, service delivery, and outcomes for savers.

To support the industry, we are:

• developing a new administration strategy
• continuing direct engagement with administrators
• updating its administration guidance setting clearer expectations for trustees
• promoting collaboration and transparency between trustees and administrators
• collaborating with the industry and looking at actively participating in industry working groups
• advising government on future legislation

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The purpose of these visits, which sometimes included attendance by the scheme trustee board, was to build relationships and gain greater understanding of how schemes and their administrators are working together.

These visits gave us valuable insight into operations, risks and good practice in relation to a specific scheme.

Examples of good practice we observed:

Innovation

Trustees and administrators are using complaints root cause analysis as a source of intelligence for innovation and continuous improvement.

Spotting opportunities to educate

Trustees are taking the opportunity to listen, review and feedback on a random selection of recorded incoming call centre calls. Trustees were able to provide steer on areas of improvement and missed opportunities to engage and educate members. This exercise was considered so valuable that they have adopted regular call reviews as a rolling agenda item for the sub-committee.

Protecting members

Trustees and administrators have a clear focus on how they identify and monitor vulnerable customers and exploring how the administrator adapts their communication style where required.

• Schemes and administrators are maintaining a list of people across the administration team who are multi-lingual to help with any members where English is not their first language or where language is causing a barrier to communication.
• Together with their administrators, schemes are alert to potential and evolving impersonation risks when reviewing process changes.
  
  

Recruitment

Trustees are understanding how the administrator is tackling recruitment and retention challenges, including exploring reward policies and career development opportunities.

These are good examples of how schemes are working closely with their administrator to listen to their members and adapt to ensure they are offering the right products, which are easy to use, and support in creating a positive member journey.

We welcome the opportunity to attend administrator site visits, understanding the challenges and providing insight into the continuous improvement to the member experience.

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Implementation strategies – good practice

Master trust trustees must submit an implementation strategy (IS) to TPR for approval within 28 days of a triggering event (TE). The IS sets out how members’ interests are to be protected after a TE and must include information as prescribed by law.

We recognise that the period following the notification of a TE can sometimes be a busy and challenging time for trustees, therefore we have provided a few tips to assist with the planning and drafting of the IS:

• Use TPR’s implementation strategy template (DOC, 750kb, 8 pages) IS on the TPR website (Triggering event duties for master trusts) – Trustees are strongly encouraged to use this template, which sets out key information we expect to see in an IS.
• Submit a draft IS to TPR for feedback – Your TPR supervisor will look through this and may provide feedback, before formal submission.
• Demonstrate adequacy and include mandatory content – We can only approve the IS if we are satisfied that it is adequate and in deciding this, we must consider the matters set out in legislation as well as any other relevant considerations. Ensure you include all the content required by legislation and guidance. One IS recently submitted to TPR included a table highlighting where each of the legislative requirements had been addressed in the IS – this was a helpful approach.
• Address operational matters – Consider including details about how blackout periods and administrator capacity will be managed during the TE.
• Provide a project plan – Including a project plan which sets out the steps required, and any key milestones is a useful way for all parties to track progress.
• Engage regularly with TPR – We encourage schemes to have regular engagement with their TPR supervisor and to flag any upcoming events as early as possible.

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Our recently launched connection campaign reminds schemes that pensions dashboards depend on a strong foundation of quality data, and everyone playing their part towards connection. 

Trustees must take the lead in preparing their schemes for dashboards. This includes the vital work of cleaning up data issues. Importantly, administrators do not have to do this alone: support and shared responsibility are essential.

Once launched to the public, a saver will use dashboards to search the records of all connected pension schemes to confirm whether they are a member. If a match is found, the scheme must return relevant and accurate value data.

The Pensions Dashboards Programme (PDP) has recently announced a three-step user testing approach for dashboards. The first step will involve working with industry experts to validate data quality, so schemes should be tackling bad data now to ensure smoother operations later and enhanced member satisfaction.

Many master trusts are now connected to pensions dashboards and are turning their attention to post-connection responsibilities, including:

• improving data quality by identifying issues using insights from PDP’s dashboard user testing
• preparing for member engagement by ensuring systems and processes are in place to respond effectively to queries as a result of dashboards usage
• monitoring progress through regular reports from connection providers and administrators on dashboards implementation

To better understand the governance, systems, and processes in place to monitor and improve data quality, we are reaching out to schemes with more than 100,000 active and deferred members. The aim is to assess their progress in preparing dashboard data. A series of meetings are being scheduled over the coming months, with several already completed.

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AI: A new paradigm for service provision

Following the launch of ChatGPT in November 2022 and the step change in technology that enabled it, the level of interest in AI has expanded rapidly. Research published by the Financial Conduct Authority in October 2024 indicated that 75% of financial services firms were using AI, with a further 10% planning to do so in the next 3 years. Slightly worryingly, the research found that although:

• 62% of AI use cases were rated as low materiality (with 16% rated as high)
• 55% of AI used cases involved some automated decision making (with 2% fully automated)

only 34% of firms indicated that they had complete understanding of the AI they used and 46% had a partial understanding. Unsurprisingly, cybersecurity was perceived as the greatest risk, with third-party dependencies, model complexity and embedded models being perceived as growing risks.

Do you know what your service providers are doing with AI?

Trustees will already have contracts with a range of services providers, including investment management providers and advisers. Many of the contractual arrangements and service delivery standards are likely to have pre-dated developments to date in the use of AI and the use of Large Language Models and Generative AI in particular.

While AI has the potential to deliver significant benefits, it could also introduce new risks, particularly in a nascent industry, developing at pace, where regulation is likely to continue to lag innovation. These new risks are unlikely to have been considered as part of due diligence or contractual negotiations at the time of provider selection.

This is a new, rapidly expanding body of work, where the extent of AI usage is expected to increase into the future.

We recommend trustees engage with their service providers and understand, for example:

• the extent to which their service providers currently use AI and the materiality of those current use applications. For example, do their investment service providers use AI as part of investment research, investment decisions, portfolio optimisation or communications
  
• the extent to which that usage is likely to change in the short to medium term
• the extent of oversight and controls that their service providers have in place over their use of AI and the use of AI by any third-party service suppliers
• the extent to which their business continuity plans have allowed for the use of AI and, in particular, interruption of access / use of AI
• the impact on specific provisions in their contractual arrangements, for example, in relation to liability and indemnity clauses and in relation to the use of data

We support schemes safely adopting new technologies, including AI.

Where trustees have concerns or feel they lack sufficient understanding or need support, we recommend they seek additional specialist advice.

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Systemic risk: room for improvement

In our previous bulletin we included articles on systems thinking and the new stewardship code. More recently we published a blog which highlights that we consider managing systemic risk to be a core part of effective trusteeship.

The pensions industry is heavily intermediated and most trustees rely on external advisers to provide advice to their scheme. Given that dependency, and the importance of systemic risks, we completed a high-level review of the references to systemic risks in the most recent Stewardship Code reports produced by a range of pension investment consultants. 

In carrying out that high-level review, our intention was not to review the provisions through a Stewardship Code compliance lens (that is the role of the Financial Reporting Council (FRC)) but purely to assess whether the references to systemic risks gave us any insights into how well systemic risks might be being considered by investment consultants.

For our review we looked at 12 disclosures. Out of that sample, two firms were clear leaders, four only included limited references and six were bunched in the middle, with some showing more potential than others.

We note that Stewardship Code disclosures are broader than just systemic risks and that some references to systemic risk might have been more limited in that context. We also note that industry practices and knowledge relating to systemic risks are emerging and disclosures are likely to evolve. However, trustees should challenge their advisers where those systemic risk references are, for example:

• generic and limited in detail
• restricted to mainly climate change
• lacking in any real evidence of in-depth consideration or understanding
• lacking in examples of actions

In challenging their advisers, trustees could also consider some of the stronger references to systemic risks included in the disclosures, for example:

• recognition of a wider range of systemic risks (than just climate and sometimes biodiversity)
• clear thought leadership
• clear evidence of consideration of systemic risks being integrated into client advice and training
• clear evidence of systemic stewardship and policy advocacy

Later this year, the FRC will finalise guidance to support the new Stewardship Code. We would expect that guidance will also provide support to consultants looking to improve their reporting in this area.

Our review was limited to a sample of investment consultants, however, we acknowledge trustees may receive advice from a range of sources including external consultants, fiduciary managers and from in-house investment teams. We recommend trustees review the investment services they are receiving and consider whether they are getting appropriate advice on systemic risks.

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Private markets: the details matter

In its July 2025 Financial Stability Report, the Bank of England (BoE) highlighted the important role that private equity (PE) plays in the real economy, including providing long-term capital, helping businesses to scale and innovate and to invest in productivity enhancing activities.

However, while recognising the potential benefits and positive capital trends, the report also returned to a recently recurring theme around existing market vulnerabilities linked to high levels of leverage, opaque valuations and the interconnectedness with the financial system having the potential to amplify market shocks. Further concerns were highlighted around some of the current market features, practices and trends, including:

• the level of committed, but undrawn capital (‘dry powder’) with an estimated $4 trillion of the total AUM of $16 trillion being currently undrawn

• the weakening of underwriting standards, with looser documentation, increased levels of leverage and the use of features like ‘add backs’, where for example, previous expense items were expected not to recur to reduce the headline leverage multiple

• the potential for some PE backed corporates, with higher levels of debt and lower credit ratings to be more exposed to higher interest rates and deteriorations in investor sentiment

• the range of consequential actions caused by the reduced level of exit opportunities for funds. The use of secured borrowing against the fund Net Asset Values (or ‘NAV Financing’) to monetise assets and access liquidity was highlighted as an area of concern, with some industry sources predicting a seven-fold increase in that market practice by 2030

• interconnectedness with the global insurance sector and, in particular the trend of private asset ownership of insurers being used as a way of gaining control over more stable funding sources

• the increase in organisational complexity and conflicts, following on from traditional models having moved from single strategy to multi-strategy entities, sometimes spanning lending, private credit, commercial real estate, infrastructure and insurance

Many trustees might view the BoE’s concerns as a barrier to investment, but that would miss the opportunity. The BoE with its financial stability remit is clearly monitoring developments. Trustees will be aware that there is never a free lunch in investment and the BoE’s concerns could be considered more as a barometer to inform the approach they adopt to private market investments.

The government has committed to delivering an investible pipeline of assets for pension funds under the Mansion House Accord. More generally, the private market opportunity is expected to expand significantly. Trustees should develop both a robust policy and risk management framework for their private market investments. For some trustees that are just starting to invest in private markets, that might seem excessive, but private market investments should not be seen in isolation. As the market moves towards fewer schemes, with material asset scale, trustees need to think more about a programme of investment, running over years and market cycles. They also need to think about the governance and investment management structures that they need for ‘tomorrow’ rather than just for ‘today’.

We would encourage trustees, with support from their advisers, to develop clear policies and beliefs for their private market investments. These policies should cover a wide range of issues across the private market universe, including for example:

• asset and fund level and the use of leverage
• contractual provisions, such as ‘amend and extend provisions’, pre-emption rights and the role of (and controls on) continuation funds

• industry features and practices, such as the use of add-ons and NAV financing
• concentration, counterparty and credit limits

We would also encourage trustees to stress test their policies and any proposed investments and, for example, to consider the potential implications of a market dislocation at the time of any planned future fund exit event.

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Consolidation good practice when investing in private markets

Two of the key trends we are observing across the DC universe are larger allocations to private market assets and consolidation, both between master trusts but also from single employer schemes to master trusts. We expect both trends to continue over the coming years. 

The unique characteristics of private markets introduce additional considerations before and during the consolidation process. We have outlined some examples below.

Longer planning process

The illiquidity of private market assets often requires a longer planning process prior to any asset transition. For example, if a decision is made to liquidate the holdings, a longer lead time may be directly required (i.e. due to the redemption terms of the holding) or indirectly (for example to find an appropriate buyer and avoid having to sell on the secondary market at significant discounts).

Even if the decision is made to maintain the illiquid assets, for example, reregistration of units from the ceding to the receiving scheme takes time to work through any pre-emption rights provisions in the fund documentation.

Valuations

If a decision is made to reregister rather than liquidate the private market holdings, consideration needs to be given to the process for ensuring members in the two schemes are treated fairly. As an example, transferring private equity exposures which were last valued a year ago may provide challenges to treating members fairly, particularly during periods of market volatility.

Fees

Private market assets are more likely to use performance fees which are often crystallised at discrete time periods. Somewhat analogous to valuations, there are potential challenges to treating members fairly if members in a receiving scheme pay fees for performance they did not benefit from.

Investment governance

Trustees must have the skills, scale, and strong governance frameworks to evaluate and assess private market assets effectively. If the transferring or receiving scheme lacks this capacity, consolidation should aim to upgrade governance models or move to a scheme with stronger investment oversight.

Thorough due diligence and planning have always been the key to a successful consolidation. While not a regulatory requirement, commissioning an independent audit or assurance report is considered good practice to support transparency and protect members' interests.

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UK investible pipeline: a spark, waiting for a flame

Published in June, alongside the UK’s Modern Industrial Strategy, UK Infrastructure: A 10 Year Strategy sets out the government’s ambition to provide at least £725 billion of public funding for a wide range of economic and social infrastructure projects. This will be in addition to spending by the devolved governments in Northern Ireland, Scotland and Wales.

The government has acknowledged that a significant increase in private capital will be needed to complement and maximise the value of that public investment. Furthermore, it will work with the private sector to develop mechanisms to enable private finance for infrastructure, with reference to new Public Private Partnership (PPP) mechanisms being explored, for example, for decarbonising the public sector estate and for community health facilities.

Responsibility for turning strategy ambition into delivery has been delegated to the National Infrastructure and Service Transformation Authority (NISTA), a new government unit, formed earlier this year. In July, NISTA published the first version of their online Infrastructure Pipeline, this is intended to provide visibility and detailed information on publicly funded, economic and social infrastructure projects in the UK.

While these new industry developments offer potential and NISTA is expected to play a vital role in delivery and oversight, the pipeline of projects will need to be investible and have the potential to meet the investment objectives and fiduciary needs of trustees, if they are to consider investing.

With new contributions of around £25 billion per annum currently flowing into DC trust-based pension schemes and total DC Assets Under Management (AUM) growing at around 20% per annum, that pipeline could offer significant investment opportunities, across a range of infrastructure sectors, for pension schemes over the coming years.

As the industry consolidates, some schemes will start to achieve material scale quite quickly and trustees will need to start planning now for the investment structures they will need in the near future. With increased visibility of the UK’s infrastructure pipeline, trustees should have an opportunity to consider the types of investment structures and relationships they might need to have in place to enable them to capitalise on some of the emerging opportunities in the future. For some schemes, this could involve:

• partnering with investment managers to create bespoke funds or portfolios focussing on specific sectors and types of infrastructure
• creating investor clubs or investment entities with like-minded investors
• building internal investment expertise and resources to enable co-investment and direct investment opportunities

Trustees should also consider developing the likely high-level operating parameters for any future programme of infrastructure investment: for example, what sectors might be considered, what type of infrastructure investment might be suitable, in terms of, say, cashflow and risk profile, what additional objectives, for example, in relation to sustainability, place-based or impact investment might be required.

Ultimately by planning for the future now and developing their investment expectations, trustees may be better placed to ensure that NISTA and government deliver a pipeline of investments that are investible for pension schemes.

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Industry engagement on UK private market investment supply

We recently talked with investment managers and pension providers in the monoline segment to explore the anticipated supply of UK-based private market investments, in light of growing demand from pension schemes.

Initial industry feedback was broadly positive. There was general consensus that the expected supply of private market investments will likely exceed incremental demand from UK pension schemes in the near term.

While private equity continues to dominate in terms of volume, respondents highlighted diversification across private market assets. Emerging supply in infrastructure may be particularly attractive for Defined Contribution (DC) schemes. Additionally, secondary market deal flow - such as from Defined Benefit (DB) schemes - could help meet incremental demand, while also mitigating j-curve effects and blind pool risk.

Despite the encouraging outlook, several challenges were raised:

• barriers in planning laws: complex planning rules may hinder investment opportunities
• workforce and supply constraints: a shortage of skilled labour and supply chain issues, especially in sectors like clean energy, could limit access to high-quality investments
• quality considerations: beyond volume, the quality of investment opportunities remains critical, underscoring the need for robust due diligence
• operational hurdles: while not prohibitive, implementation considerations for private markets, along with fee constraints, remain important considerations in DC
• deal sizes: smaller ticket sizes in particular areas (for example venture capital) may become difficult to access as DC asset values grow

We will keep working with industry to monitor market developments and understand how opportunities and challenges are evolving. We welcome your thoughts and feedback as we progress this important work, and many thanks to the schemes which supported us in this initial research.

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Investment data collection ahead of VFM

With the changing landscape of master trusts and the market they operate in, we are evolving our supervision to ensure it keeps pace. Understanding in more detail investment performance and asset allocation data across master trusts is a crucial regulatory tool to ensure they continue to meet the authorisation criteria and deliver the best outcomes for savers.

As noted in our last newsletter and the Government’s Pensions Investment Review, we are working with the FCA to look at how we may additionally use this data to test and learn the approach of TPR to the incoming VFM legislation.

Data will be requested as at 31 December 2025, and is expected to include:

• asset allocation (by asset and sub-asset class, with UK-overseas splits) at different points of the glidepath and in aggregate

• gross and net investment performance over 1, 3, 5 and 10 years at different points of the glidepath

• annualised standard deviation of returns over 1, 3, 5 and 10 years at different points of the glidepath

All master trusts will be asked to participate with a focus on main default strategies. Data will be collected via a survey format as opposed to an Application Programming Interface.

We appreciate support from schemes to meet this request and your supervisory team will give you more information in due course.

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We’re reminding trustees of their legal obligation to obtain appropriate investment advice, as set out in Section 36 of the Pensions Act 1995. This is particularly critical for private markets, where underlying investments are often illiquid.

When to take advice

Trustees must take advice when exercising investment powers and they must review it periodically to make sure it remains suitable. Trustees should also seek advice following material changes, such as shifts in market conditions or investment strategy.

Key considerations

Trustees should ensure they are clear on how their investment choices are appropriate, including considering:

• suitability against scheme objectives
• diversification, liquidity, and risk
• costs and charges, including performance fees
• governance and oversight

While trustees do not need not be investment experts, they must be able to understand and challenge advice. Where internal expertise is limited, consider upskilling, delegating, or strengthening the trustee board.

For more information please refer to the investment section of TPR’s code of practice or contact your legal advisers.

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Climate reporting: four years on

Following the publication of the first TCFD reports pension schemes were required to produce under the 2021 regulations, we carried out an initial high-level review. The review, carried out in August 2022, was across a range of 24 DC Master Trusts, DB schemes and DB/DC hybrid schemes. It provided an initial insight on scheme reporting and into some of the industry challenges around data and climate scenario analysis, where the impacts, particularly in high temperature scenarios, appeared to be unrealistically low.

Those same schemes (23 now) recently published their fourth TCFD reports, in which they would have had to update their climate scenario analysis, if they hadn’t done so since their first report. We recently carried out a further high-level review to track progress since the first TCFD reports.

Our observations

A few large schemes, with longer term horizons (typically DC and/or open DB or hybrid) appear to have adopted a much more progressive approach towards climate related risk and opportunity management and to have entered more into the spirit of the regulations (Progressives).

Many more (Improvers) have made material progress since 2022 but a few, perhaps influenced by their DB scheme funding level and/or sponsor strength and industry appear to have made little real progress (Reporters).

Here, we set out high-level features of reports that fall into these three segments.

Progressives

Typically, trustees of these schemes sought to improve the quality of climate risk and scenario analysis, with an increased focus on physical risks and to improve the decision usefulness of outputs, allowing for the limitations. Reports also included clear evidence of actions taken and plans for future development and improvement, with commitment to investment in climate solutions and prioritised stewardship and engagement programs. Recognition of the inter-related risks posed by nature and biodiversity loss and wider sustainability themes, such as water stress, were often present, with clear themes for action.

Improvers

There was a range within this segment but generally, there was clear evidence of trustees taking action, stewardship was often prioritised, and stewardship actions were often evidenced. More generally, the approach to scenario analysis had typically improved with more engagement with the analysis, including qualitative overlay of quantitative outputs, challenge of scenario outputs, and better recognition of the limitations.

Reporters

A common feature of these reports was relatively generic references to issues such as physical risk, investment management engagement and stewardship, climate solutions, and opportunities. Nature and biodiversity were typically not referenced and progress (and general engagement) on scenario analysis appear limited.

We encourage trustees to consider the emerging practices of some of those schemes that adopt a more progressive approach to the assessment of climate-related risks and opportunities.

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Climate reporting: the art of the possible

In 2018 the United Superannuation Scheme (USS) produced its first Taskforce on Climate-related Financial Disclosures (TCFD) report, on a voluntary basis. Since then, climate change has now become a regular feature for many trustee boards. However, despite considerable progress, its most recent report outlines “the outlook for real-world decarbonisation and achieving a rapid and orderly transition looks bleaker”.

The USS’s most recent TCFD report includes work undertaken with external experts including the University of Exeter and Cambridge Econometrics which the trustees are keen to share with industry.

We encourage trustees to review the USS TCFD report and others, to develop their understanding of other practices and the art of the possible.

Standout items from this year’s USS report

Physical risk analysis

The report included new physical risk analysis, using location specific GDP data and simulations of hazard occurrences, for the first time.

Time horizons

The trustees shortened their time horizons to better align with their understanding of the interactions between macro factors, and to be more consistent with an investment horizon that provides a more accurate and actionable framework for investment decisions.

Heatmaps

The USS report included:

• financial heatmaps which provide insight into the impacts on the key variables of GDP and interest rates
• sector heat maps which include broad sector narratives and set out macro narratives for individual sectors

Investment decision making

The report included increased integration of material climate-related issues into advisory and investment decision making and the allowance for physical risks assessment of countries within asset allocation decisions made by their investment manager.

Climate scenario analysis

All scenario analysis is subject to limitations and context but one really insightful finding from this year’s analysis was that higher, more volatile and sustained inflation was a major concern across all scenarios.

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Improving asset owners' understanding of climate risk

Funded by Horizon Europe and UK Research & Innovation, the ASPECT (Adaptation-oriented Seamless Predictions of European ClimaTe) project group is seeking to provide useful, usable and seamless climate predictions that span across timescales, spatial scales and decision-making levels to facilitate adaptation decisions in a range of sectors.

Working with a range of research partners across Europe, including the Met Office (UK), the project will run until December 2026 and will focus on European climate, while looking more widely into policy-interest areas, such as disaster preparedness, and regions of the world that directly or indirectly impact Europe.

One key part of this project is to understand what information is useful for investment decision-making by pension funds and what climate information is needed to support investment and risk management. To support this, the Met Office (UK) is designing a website, including a risk-modelling tool, for people without climate knowledge. The online resource will provide insights into how extreme weather (in this case heavy rainfall leading to flooding) could lead to financial losses in pension portfolios.

To ensure its website and tool are decision useful, the Met Office has worked with researchers at the School of Earth and Environment at the University of Leeds to design a survey where the responses will help improve the prototype and maximise the impact of the project. The survey is open for completion until 10 October 2025 and the Met Office (UK) would welcome responses from pension funds.

The body of knowledge relating to climate change continues to rapidly evolve and, recently, concerns over the potential for climate change related physical risks to manifest sooner rather than later have increased. This initiative to develop transparent, robust and decision-useful tools for the financial sector is to be welcomed. We encourage trustees and their service providers to consider responding to this survey.

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A climate Minsky moment?

In 2022 we hosted a webinar involving members of the International Monetary Fund's Financial Sector Assessment Programme (FSAP) team who presented on the climate stress analysis they carried out as part of the UK’s quinquennial FSAP review. 

The FSAP’s team approach was based on assessing the implications of a climate Minsky moment which, as outlined by Mark Carney in 2016, can be seen as “A wholesale reassessment of prospects, as climate-related risks are re-evaluated, [that] could destabilize markets, spark a pro-cyclical crystallization of losses and lead to a persistent tightening of financial conditions”.
 

A question often asked is, what could be the catalyst for a climate Minsky moment? Opinions vary, however, in a world of elevated geopolitical risks and competing international risks, the potential for a series of mini-climate Minsky moments, followed by market adjustments, appears more likely than one single climate Minsky moment. More generally, the cumulative effect of a succession of announcements, publications and improvements in the approach to modelling and analysis (despite limitations) has the potential to catalyse re-assessment and action. Some recent examples to illustrate:

• In February, the Norwegian Sovereign Wealth Fund (Government Pension Fund Global) published its Climate and Nature Disclosure 2024. With around £1.5 trillion of assets under management (more than the combined assets of UK trust-based DB and DC schemes) and with the title of the world’s largest Sovereign Wealth Fund, it is a global investor with significant influence. Its 2024 disclosure includes some useful insights but one in particular stands out. The report highlights that they “…believe the effects of physical climate risk on the fund may be severely underestimated.” Additional (top-down) analysis it completed suggested that the present value of average expected losses from physical climate risk on its US equity investments under a Current Policy scenario could be between 19% (at the 50th percentile) and 27% (at the 95th percentile, which is materially more than the corresponding figures of 2% and 3% estimated under a bottom-up approach). They also acknowledge that the additional analysis still underestimates physical climate risk.
• In our April bulletin, in the article ‘Climate investing – the need to consider real world impacts’, we referred to analysis carried out by the Bank of England which suggests that some credit markets materially underprice the risks to corporate borrowers’ financial resilience. Examples given suggest that for an orderly transition scenario, for high-yield bonds with a maturity greater than eight years, only around 50% of transition risks expected to crystallise were priced in and for the energy sector, estimates suggest that less than 35% of transition risk impact was priced in.
• In July, the European Central Bank announced its intention to introduce a climate factor into the collateral framework for the Eurosystem to protect against the potential decline in value of collateral in the event of adverse climate-related transition shocks. That measure will be introduced in H2/2026.

Trustees need to be mindful of the limitations of their current scenario analysis and of the potential for market repricing of certain assets. Trustees should also be mindful that less liquid assets and some long-term funds may be more vulnerable to market repricing. We recommend trustees review their investment holdings with their advisers, seek to identify any particular concentrations of investment exposures to, for example, climate related physical, transition or litigation risks, and consider the impact that climate risk repricing might have on the valuations of those assets.

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