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TPR provides guidance for trustees setting and monitoring investment strategies

Ref: PN17-12
Thursday 30 March 2017

As part of its strategy to produce simpler guidance for occupational pension schemes, The Pensions Regulator (TPR) has today published new investment guidance for trustees.

The guidance follows the common principles set out in TPR’s DC investment guidance together with some specific considerations relevant to defined benefit schemes.

It includes examples of approaches and factors to consider when investing scheme assets to fund defined benefits. TPR expects trustees to have suitably documented investment arrangements that are appropriate for their scheme’s circumstances, including their level of complexity.

Fred Berry, TPR’s Head of Investment Consultancy, said: "Good investment governance is essential to all pension schemes, indeed to any institutional investor, and we expect them all to adhere to those common principles.

"The investment strategy is one of the most important drivers of a scheme’s ability to meet the objective of paying the promised benefits as they fall due, and we expect trustees to set this in the context of their integrated risk management approach.

"It’s important to set clear investment objectives for your scheme and to identify how and when they should be achieved. Our guidance states that trustees should focus on areas that have the most impact for meeting their scheme’s objectives, and identify the necessary skills for the board of trustees of their scheme. It also provides some practical guidance on how to get the best from their advisers."

Trustees are responsible for their scheme’s investment governance arrangements, including determining its investment strategy. The law requires them to ensure they are familiar with the basic legal principles of pension scheme investment, as well as the investment provisions of their scheme’s governing documents.

A good investment strategy is likely to:

  • involve effective governance, delegation and monitoring
  • form part of an integrated risk management process
  • be consistent with the scheme’s objectives and any long-term plans
  • have an overall amount of risk consistent with risk appetite
  • involve risk-taking that is understood and balanced
  • allow for the scheme’s future cash flow and liquidity requirements

As well as setting an investment strategy, it is important for trustees to consider how their strategy is to be implemented. This includes considering operational risks, security of scheme assets, asset transitions and liquidity and collateral management.

The new guidance emphasises the importance of focused, timely monitoring and outlines how trustees may find it helpful to put together an investment monitoring dashboard. This can provide an at-a-glance financial position of how a scheme is meeting its objectives and highlight potential risks and issues.

Trustees of some schemes, such as those with fewer than 100 members, wholly-insured schemes or small self-administered schemes are subject to different requirements in some respects. Trustees that think this could apply to their scheme should obtain legal advice on the applicable requirements.

Editor's notes

TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).

Press contacts

David Morley 01273 662091

Matt Adams 01273 662086

pressoffice@thepensionsregulator.gov.uk

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