A whistle-stop tour of
tPR’s investment guidance for DB trustees

Our viewpoint

The Pensions Regulator yesterday issued its much-anticipated investment guidance for DB pension schemes. Overall, the Regulator has done a good job of focussing on the key issues that actually matter most to trustees. It has aimed for the guidance to be workable, by using case studies to bring out practical steps that trustees can take.

Unsurprisingly – and sensibly – a key theme running through the guidance is that understanding and monitoring the strength of the employer covenant is crucial to setting an appropriate investment strategy.

But the guidance also puts particular focus on helping the trustees of schemes that have already been closed to new members for many years, and are now facing the challenges of an aging membership. This is timely and helpful, as a large and growing number of pension schemes are finding themselves in that boat. The guidance includes practical advice on:

  • Setting a clear journey plan – to help you reach a secure position in the future, when most of your members have retired
  • Capturing opportunities effectively – for example through better governance that uses de-risking triggers to bank investment “profits” and improve the overall funding position
  • Dealing with the challenges of becoming cashflow negative
  • Managing the operational risks of using liability-driven investment

One of the other key areas of focus in the guidance is effective investment monitoring. Refreshingly, the Regulator takes the view that focussing on the big picture strategy is more important than getting bogged down in the granular detail, and encourages ‘timely’ and ‘actionable’ monitoring. Good news for trustees that prefer using real-time technology and simple dashboards, rather than thick reports full of out-of-date information.

Investing sustainably and having good stewardship practices are explicitly encouraged. This makes good financial sense for long term investors like pension schemes. It’s important that your managers are thinking about long term risks like climate change, and are using your voting rights to make sure your investments are being managed in your interests.

Finally, there is some clear guidance on the key issues and potential pitfalls for trustees considering fiduciary management. The Regulator suggests that trustees may wish to consider appointing an independent consultant to help structure and monitor the arrangement.

Watch our webinar on demand - "What you need to know about tPR’s new DB investment guidance"

Below you will find some helpful resources on some of the topics covered in the guidance:

  1. LCP explains: keeping on top of your liability-driven investment portfolio - read it here
  2. Practical ideas on how trustees can effectively integrate employer covenant into their investment strategy – watch the webinar
  3. In our last edition of LCP Vista we set out our thoughts on cashflow negative pension schemes, by explaining how trustees can get through their “mid-life crisis”
  4. Our Investing Responsibly magazine covers a diverse range of topics from identifying your investment beliefs to selecting and monitoring your managers
  5. Our independent guide to fiduciary management helps you understand the key issues and navigate the conflicts
  6. Our new guide to responsible investment in defined benefit schemes