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DWP brings in new measures on investments

Pension Board and Trustee Consulting

September 11, 2018

The DWP has announced measures to clarify trustees' investment duties including the content requirements for their SIPs

Trustees will have to update their Statement of Investment Principles (SIP) by 1 October 2019 to disclose their approach to "financially material considerations" under new measures announced today by the Department for Work and Pensions (DWP). These considerations will include the current environmental, social and governance issues extended (but not limited) to include climate change.

In the Government's response to "Clarifying and strengthening trustees' investment duties", Pensions Minister Guy Opperman writes that "trustees have absolute primacy" in relation to investment decisions and strategies, but he also makes clear that they can take account of members' views in certain circumstances and should make clear to members when this might be. The DWP has sought to make its proposals less susceptible to controversy by removing the requirement for trustees to have a separate statement of members' views and replacing this with an optional policy on allowing for non-financial factors.

Financially material considerations

Trustees who are currently required to produce a SIP will have just over a year to update or prepare a new version to show how they take account of "financially material considerations over the appropriate time horizon of the investments". This is the length of time that the trustees consider is necessary for the funding of benefits by the investments of the scheme. The trustees will also need to state their policy on stewardship of the investments through engagement and voting – and these latter requirements are being extended to "relevant schemes" (most schemes offering money purchase benefits other than AVCs) with 100 or more members.

Trustees will also have to publish their SIP on a publicly accessible website and alert scheme members to it via their annual benefit statement. The DWP's existing statutory guidance which covers the publication of costs and charges information has been extended to include SIPs. Trustees of relevant schemes will also need to update their default fund's strategy to state how they take into account the above considerations. 

Implementation statement

From October 2020 trustees will have to produce and publish an implementation statement on their SIP. This will need to state how they have implemented their investment policies and explain and give reasons for any change made to the SIP.

While the regulations will not be prescriptive on the contents of the statement, the Pensions Regulator will provide non-statutory guidance by the end of November 2018 and schemes will have to use members' annual benefit statements to draw attention to the implementation statement.

The Government has confirmed that the amending regulations (which are attached to the response) will be laid in September, giving trustees a year take the necessary action.

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