Technical Update

Current Issues: New Investment Duties

This article is technical update intended for pension professionals and trustees

In July 2018, we reported on a Government consultation proposing regulatory changes to trustees’ investment duties. The focus was on how trustees should consider long term investment, taking into account environmental, social and governance (ESG) issues, and climate change.

The proposed regulations would have required most schemes to update their Statements of Investment Principles (SIP), and for DC schemes, a requirement to publish a ‘Statement on Members’ Views’ setting out how the trustees had taken account of members’ views on investment matters. This latter requirement has now been dropped.

The Government has now concluded its consultation and has published a response setting out the new requirements. These are set out below.

  • Defined Benefit Schemes with fewer than
    100 members
    No action is required by these schemes.
  • Defined Benefit Schemes with more than
    100 members
    By 1 October 2019, trustees of these schemes will need to update the SIP to:

1) State their policy on how they have considered the evaluation of financially material considerations, including ESG considerations and climate change. The evaluation should be over an appropriate time, for example, the expected lifetime of the scheme.

2) Include any policy decision regarding whether or not to seek members’ views on non-financial factors. This would include members’ ethical concerns, social and environmental impact matters and quality of life considerations.

3) Show how the trustees discharged their stewardship responsibilities. This is broader than the current regulation which simply requires trustees to report on their policy in relation to the exercise of rights
(including voting rights).

      • Defined Contribution Schemes (including hybrid schemes) with less than 100 members
        The SIP for these schemes should already include comments on the scheme’s default investment strategy. By 1 October 2019, this should be updated to include comments on how the trustees have accounted for financially-material considerations and any policy on non-financial factors (see items 1 and 2 for DB schemes with more than 100 members).
      • Defined Contribution Schemes (including hybrid arrangements) with more than 100 members These schemes will need to comply with the requirements for DB schemes with more than 100 members, and DC schemes with less than 100 members. Additionally, the SIP wording in respect of the default strategy should be updated to cover how stewardship responsibilities have been discharged.

The SIP should be updated and published by 1 October 2019 on a website that can be accessed by both scheme members and the general public. Scheme members must be advised of this via the annual benefit statement. This is similar to the requirements in respect of the ‘cost and charge’ illustrations and, indeed, it would be possible to co-locate both disclosure requirements.

Finally, from 1 October 2020, these schemes will need to produce and publish an implementation statement setting out how the trustees acted on the principles set out in the SIP. The statement should be published in the same manner as the SIP.

The new regulations will require careful consideration and trustees should engage with their investment advisers to ensure that the SIP is updated by 1 October 2019.

Adam Simons

Senior Consultant