Better cooperation still needed to get full value out of pensions implementation statements

Out-Law Analysis | 21 Oct 2021 | 9:57 am | 2 min. read

From 1 October 2020 UK pensions legislation requires all defined benefit (DB) and defined contribution (DC) pension schemes to publish an “implementation statement” setting out how trustees have put into practice the policies in the scheme’s statement of investment principles (SIP) over each reporting period.

This requirement was introduced as part of wider regulatory changes designed to increase accountability for, and the transparency and governance of, the investment strategy of pension schemes.

Schemes must publish the implementation statement when they sign off their annual report and accounts. While the introduction of the regime has been generally successful, encouraging schemes to give more detailed consideration to their underlying investment governance, many challenges remain, particularly in obtaining all the financial and reporting data needed to meet the legislative requirements, and then distilling and refining that data into a reader-friendly format.

Making the implementation statement worthwhile

For the preparation of the implementation statement to be a worthwhile exercise, trustees need to go beyond simply “ticking the box” and doing the minimum needed to comply with the legal requirements.

To get real value from the process, trustees should see the preparation of the statement as a way to demonstrate to members how they have not only delivered against the scheme’s investment policies, but as a way of continually improving and refining the scheme’s overall investment strategy and governance each year, to ensure it remains appropriate and fit for purpose. This is particularly important given the increasing focus within the wider community on environmental, social and governance matters.

Trustees need to work with their advisers, particularly the scheme’s investment consultants and managers, not only to make sure they have all the information they need to prepare the statement as soon as possible, but also to allow sufficient time for analysis and consideration of that information before the publication deadline.

Obtaining the necessary data is not always straightforward, and trustees need to build in sufficient time to resolve any challenges around the data. While meeting the legal requirements is itself no easy task, trustees also need to give thought to how they can make the statement as easy as possible for members to read and understand.

Increasing regulatory burden

Implementation statements are not the only area of focus for trustees. Pension scheme governance requirements are constantly increasing, and trustees must keep their understanding of these developments up to date, to minimise the risk of regulatory scrutiny, and penalties.

The Pensions Regulator has been consulting on a new single code of practice, which will replace 10 existing codes. It is expected to be laid before Parliament in spring 2022 but will not come into effect before summer 2022. Meanwhile the Pensions Schemes Act 2021 has introduced new sanctions, which trustees also need to take note of.

All trustees must now be able to demonstrate good and appropriate levels of governance to avoid sanction or inquiry from the Regulator, as well as disgruntled members.

Many of these new requirements may seem more suited to the larger and more sophisticated schemes, but the trend over time has been for these requirements to be rolled out to all schemes, whatever their size, so they cannot be ignored.