The UK Pensions Regulator has - as part of its strategy to provide simpler guidance for occupational pension schemes - published new investment guidance for Defined Benefit (DB) trustees. It follows the general principles outlined in its Defined Contribution (DC) investment guidance with some special issues designed for Defined Benefit schemes.
The Regulator said in a statement accompanying the report that it expects trustees to have ‘suitably documented investment arrangements that are appropriate for their scheme’s circumstances, including their level of complexity’.
The guidance covers Investment governance, setting investment strategy, implementing the investment strategy and monitoring investments. Effective governance is needed to provide a good investment strategy. This will involve delegation and monitoring; forming part of an integrated risk management process; having stable scheme objectives and long-term plans; having total risk consistent with risk appetite; involving risk-taking that is understood and balanced, and allowing for the scheme’s future cash flow and liquidity requirements.
The law requires that trustees are familiar with the basic legal principles of pension scheme investment and the guidance includes factors and approaches to consider when investing scheme assets to fund defined benefits. It emphasises the importance of “focused, timely monitoring” and how trustees may benefit from putting together an investment monitoring dashboard. It is suggested that this could provide an “at-a-glance financial position” of a scheme’s current state in terms of meeting objectives, potential risks and issues.
Fred Berry, TPR 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."
