The government will remove any further time limit on the exemption
The government has pledged to maintain the pension fund clearing exemption for the longer-term.
Pension funds currently have an exemption from the clearing obligation for derivative contracts – an exemption which was originally established as a temporary solution when the clearing obligation was introduced in June 2016 and has since been extended several times, most recently in 2023 when it was extended until 18 June 2025.
As part of the last extension the government pledged to review the arrangement ahead of this deadline and published a call for evidence on the exemption in November 2023 to determine a long-term approach.
In its response to the call for evidence, published today (10 January), the government said: "Having analysed the responses to the call for evidence and having engaged with the UK regulatory authorities on the issue, the government has decided that the exemption should be maintained for the longer-term.
"The government will now take forward legislation to ensure that the exemption does not expire on 18 June 2025 as currently scheduled and to remove any further time limit on the exemption. The government will, however, keep this policy under review in coordination with the UK regulatory authorities."
Today (10 January 2025) the government announced it will take forward secondary legislation to ensure that the pension fund clearing exemption does not expire on 18 June 2025 as currently scheduled and to remove any further time limit on the exemption.
The government received 26 responses to its call for evidence – including one from the Association of Consulting Actuaries (ACA).
In its submission, the ACA said if the exemption was to expire then it is "likely to create operational burdens and bottlenecks to implement and we believe on balance it will bring more costs than benefits". In particular, the ACA said it was likely to lead on average to pension schemes needing to hold more instantly available cash.
Commenting on the announcement, Brightwell chief investment officer Wyn Francis said the government's announcement to maintain the exemption was "welcome news for pension schemes and their sponsors".
"The industry has consistently made the case for a permanent exemption and having greater certainty is good news.
"An expiration of the exemption would have required pension schemes to hold more cash which would have reduced pension schemes' investment options and impacted investment returns. It would also have increased costs due to the direct costs involved in clearing trades."
Insight Investment head of public policy Vanaja Indra agreed: "This shift from a temporary to a long-term solution provides greater certainty for schemes. Insight has been vocal about the benefits of a long-term solution since 2012. We believe it to be in the best interests of both schemes and the UK economy.
"Mandatory clearing would have forced schemes to hold more in cash to enable them to clear, rather than to allocate their investments prudently and in pursuit of their objectives. Greater freedom to invest also retains the opportunity to boost the economy."
